German Businesses Pessimistic as IFO Index Sees Lowest Readings Since 2008

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In Brief
  • The IFO Index in Germany has recorded its lowest readings in over a decade, losing more than 10 points.

  • Some businesses are reopening on a limited basis in the next few weeks.

  • Public gatherings are still banned until August.

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The IFO index reading, which tracks German market sentiment, has seen record lows for the second month in a row. This indicates that German businesses are pessimistic about both the present and the future.

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The COVID-19 outbreak has affected every aspect of life but none is perhaps as evident as the economies of the world. A record number of people have filed for unemployment in countries like the United States and businesses have been forced to suspend operations or close up altogether.

Economic Outlook Pessimistic in Germany

The prolonged period of business activity cessation has proven to have devastating consequences for the German economy.

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It was reported on April 24, 2020, that the German IFO Index reading has sunk to some of its lowest ever points.

The IFO is an index that is run by the IFO Institute, a Munich-based think tank. The reading is determined by measuring the sentiment among 9,000 German companies and is commonly used as an indicator of the business climate in Germany.

Source: IFO Institute

As per the April report, the business-climate sentiment was measured at 74.3 points, which is a decline from March’s reading of 85.9. While the current assessment component is low, it has not yet sunk to its lowest point ever. The expectations component, which measures sentiments about the future, has, however, and this indicates an air of pessimism among German businesses.

The last time readings were this poor on the IFO index was in 2009 as a global recession was taking place and there was negative growth in the economy. It cannot be immediately said how the index will change over the next month as some German businesses are reopening under strict guidelines and schools are expected to resume in the next few weeks.

Long Road to Recovery

In the meantime, the German government has approved a 10 billion euro stimulus package, as well as initiatives like unemployment benefits and reduced VAT for certain businesses. With the measures about to be implemented and the slow resurrection of some businesses, it is not impossible that the index will see some improvement in May.

However, public events are still banned in Germany until the end of August 2020 and this means that a full recovery will not likely be possible until then.

IFO President, Clemens Fuest, has stated that the middle of the year is the earliest time for any possible recovery and that when such a recovery comes, it will not be a ‘V’ shaped spike on the charts. Chancellor Angela Merkel has promoted a message of endurance, stating that the pandemic is still in its early stages and has also called for increased support from the European Union.

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Rahul is an India-based Digital Marketer who became attracted to Bitcoin and blockchain technology in 2014. Ever since, he's been an active member of the community. Other than that, he is a die-hard gamer. This gadget freak is well renowned in his circle for binge-watching Game of Thrones.

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