A surprising “positive” estimate for Germany from the ifo Institute this morning:
While the GDP contraction for 2020 is seen sharply at -4.2 percent y / y, the unemployment rate appears rather strong and employment levels appear to have only a weak impact. Estimates for the current account imply weak global demand shocks. The swing in the fiscal position is about 6.5 percent of GDP, reflecting emergency support measures. This is important, and sustains the expected effect on employment and unemployment, and there is no dynamics of deflation in labor costs.
My view: Germany is entering a pandemic crisis with an already weak economy. 2019 growth at 0.6 percent was surprisingly very weak, with the economy experiencing a recession. The large strengths in the current account balance reflect weak domestic demand, and the economy depends on global growth momentum. This momentum is now severely disrupted, and I don’t expect a strong global recovery beyond domestic demand. In other words, my view is that exports around the world are unlikely to recover strongly at H2 2020, putting enormous pressure on the net export economies, such as Germany and Italy.
So, while a 4+ percent decline in full-year GDP might be fine, I would expect a closer to 5-5.5 percent decline (reflecting weaker prices) and a far more real impact on the unemployment rate and employment.
Editor’s Note: The bullet summary for this article was chosen by Finding Alpha editor.