German investor morale rises but uncertainty dogs export-dependent economy

Jill Petzinger
Jill Petzinger, Germany Correspondent, Yahoo Finance UK
Mercedes S-Class production line at Daimler AG plant in Baden-Wuerttemberg, Sindelfingen, Germany. (Marijan Murat/Picture alliance via Getty Images)

German investors morale took a more optimistic turn this month, after a gloomy April under coronavirus lockdown.

The investor morale index from Centre for European Economic Research (ZEW) on Tuesday showed an uptick in economic sentiment in May to 51 points, its highest reading in five years, and 22.8 points higher than in April.

“Optimism is growing that there will be an economic turnaround from summer onwards,” said ZEW president Achim Wambach.

Those surveyed expect economic growth to pick up in the fourth quarter — but they don’t envisage a return to the output levels of 2019 to be achieved until 2022.

However, Clemens Fuest, president of the IFO Institute for Economic Research, told journalists on Tuesday that while a rise in traffic and electricity usage shows German economic activity is ramping up a little, the challenges are still huge, and the ongoing uncertainty makes it hard to make prognoses.

The likelihood that it could be 2021, or even 2022, before there is a vaccine against COVID-19 means that “the restrictions we live with will be with us for a very long time, and future economic developments will depend on how well we learn to live with the virus,” Fuest said.

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While Spain, France, and Italy have been harder-hit by coronavirus, Germany’s tight ties to international trade puts it into a dependent position.

“When we think back to the finance crisis as a comparison, it was above all China that, through its big economic stimulus programme, boosted its imports and supported the global economy — and Germany,” Fuest said. “That won’t be the case this time… China won’t be the locomotive for the global economy that it was in 2009.” 

The German economy ministry last month forecast gross domestic product (GDP) will shrink to -6.3% in 2020. In January, before the coronavirus crisis hit, its estimate was for GDP growth of 1.1%.

READ MORE: Germany braces for worst recession in post-war history

“It is currently still impossible to measure the more permanent damage the crisis has caused and a return to pre-crisis levels is unlikely to happen before 2022, even for the German economy,“ ING chief economist Carsten Brzeski wrote in a note. “However, today's ZEW index presents encouraging evidence that at least the low point of the slump could be behind us.”