• Joel

Global Recession Looming?

In March, the ZEW Indicator of Economic Sentiment for Germany plunged by 58.2 points to minus 49.5 points, the largest one-month drop since the survey was started in December 1991.

Moreover, the assessment of the economic situation in Germany also worsened significantly in March; with Current Conditions gauge fell to -43.1 from -26.4.

This combination of strongly negative values for the indicators of both the economic sentiment and the assessment of the current situation has only been witnessed once – during the financial crisis in autumn of 2008, said ZEW; essentially things are getting as bad now as during the financial crisis.

ZEW President Professor Achim Wambach said:

The slump of the ZEW Indicator of Economic Sentiment was to be expected. The economy is on red alert. The financial market experts currently expect to see a decline in the real gross domestic product in the first quarter, while also considering a further drop in the second quarter to be very likely. For the whole of 2020, the majority of experts currently expect a decline in real GDP growth of approximately one percentage point as a result of the corona pandemic

EUR has been coming under pressure since the data flirting with the psychological 1.1000 level to the downside. This latest release just adds more weight to the inevitable, investors will be thinking.

More broadly, the economic impact of Covid-19 remains hard to assess, given how fluid and fast-developing the situation is. For example, just this morning, a large German car manufacturer announced temporary production stops, and more are expected to follow.

“With the lockdown, there will be a sharp fall in private consumption to at least 4% compared with the levels at the end of last year” says ING.

“In our view” they continue, “the German economy is likely to experience a recession in the first half of the year, in terms of the plain GDP data probably getting close to numbers seen during the financial crisis.”

During the peak months of the 2008/9 global financial crisis, the German economy fell by 1.6% Q/Q in Q4 2008 and 4.7% Q/Q in Q1 2009, driven mainly by a sharp fall of exports.

But in the current crisis, the hits will come from several sides, notes ING. “Based on the currently available information, we now expect the German economy to shrink by more than 1.5% YoY in 2020”, says the bank.

Clearly, the same is to be expected for other European nations, the US, Canada, Australia, New Zealand, and wherever else the virus, or at least its economic effects, spread.

Will the virus trigger a global recession? As the days go by, this is seeming more and more likely.


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