German companies: Business climate worse than ever before

The mood in German companies deteriorated in April to an unprecedented extent. As the ifo Institute noted in its monthly survey, both the assessment of the current business situation and business expectations collapsed at a record pace in April.

In contrast to the economic and financial crisis a good ten years ago, this time the service sector and retail trade have been hit particularly hard. The lockdown has forced many companies to completely discontinue their business operations. The collapse in sentiment in these sectors was therefore particularly severe. However, sentiment indicators in the construction industry and especially in the manufacturing sector also fell sharply once again. The business climate in the manufacturing sector is currently as bad as at the height of the financial crisis.

In contrast to the ZEW Indicator of Economic Sentiment, for example, the ifo survey shows a very sharp drop in the expectations component in addition to the assessment of the situation. It should certainly be taken into account that the ifo Institute asks about the outlook for the next three months, but the ZEW asks about the 6-month outlook. Above all, however, the fact that the ifo institute directly surveys German companies in the various sectors, while the ZEW sends its questionnaires to financial market participants, is likely to play a role. On the financial markets the hope for an improvement of the economic situation in the foreseeable future seems to be much higher than on the companies themselves.

All in all, it is certainly to be expected that in the course of the gradual lifting of the lockdown and the beginning of opening at least in some sectors, sentiment will also gradually improve again in the coming months. However, it does not look like a quick recovery at present. The crisis will probably continue to accompany us at least until the autumn, perhaps even longer.

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