Stock markets

Corona crisis throws the euro zone back into 2005!

The cross-border corona lockdown led to a 12.1 percent quarter-on-quarter decline in gross domestic product (GDP) in the euro zone in the second quarter. This slump is not only historically high. GDP is now even only at the level of 2005! 15 years of economic activity have been set back within only two quarters. Despite the expected recovery, some of which will be strong, it will take some time to make up for this setback. A look at the large member states, for which initial calculations or estimates are already available, also shows the drama of the corona recession. In the second quarter of 2020 all countries had to record double-digit declines in quarterly rates. The German economy was the best performer. Here, the minus was 10.1 percent, in Italy -12.4 percent, in France -13.8 percent and in Spain even -18.5 percent. These were all unprecedented declines in economic output…

USA: Corporate earnings collapse

The reporting season in the USA started last week. In the second quarter, corporate earnings are likely to have fallen by almost 50% year-on-year. This would be the sharpest drop since the 2008 financial crisis. In particular, corporate earnings in the energy and consumer goods sectors are likely to have fallen significantly. Energy companies suffered from the low price of oil, while consumer goods manufacturers felt the impact of the collapse in demand and disrupted supply chains. Airlines, car manufacturers and companies in the travel & leisure industry (hotels, cruise ships, casinos) were particularly hard hit. Many of the companies are in the red. They are partly dependent on state aid. Analysts do not expect profits to rise in any of the eleven US sectors. Even the cyclically stable utility stocks are likely to have earned less than last year. The same applies to the IT sector, where profits are…

New equity culture in Germany?

The figures recently published by the Bundesbank on the formation of financial assets are likely to surprise even experts: in the first quarter of the current year, German citizens invested a net 13.8 billion euros in shares and similar equity securities and another 7.1 billion euros in investment funds. And this despite the fact that the corona pandemic triggered historic price slumps on the stock markets. Towards the end of the winter quarter, for example, the DAX plummeted by almost 39 percent in just four weeks. Private households in Germany are traditionally considered to be rather risk-averse. Their financial assets consist primarily of bank deposits and life insurance policies. And in other crises, such as the recent financial market crisis, they have reacted to price slumps, sometimes in panic, by selling securities. There are certainly several reasons why things look different this time: For example, the financial market crisis not…

Rising debt is not currently the problem, but it may become one

The corona crisis is increasingly proving to be a severe test for the debt sustainability of the EMU states. The financial and sovereign financial crisis of the euro states is now being followed by the third crisis in only about twelve years, which is having a noticeable impact on the debt ratios of the states. In the case of Italy, the debt ratio is expected to rise to 160% of GDP by the end of 2020. In order to stabilise the debt-to-GDP ratio in the long term, the primary balance is the central factor influencing the debt ratio from the perspective of the states. Our results show that the primary balance that Italy needs to achieve in order to stabilise the debt-to-GDP ratio over the longer term rises to 3% of GDP as a result of the crisis. In recent years, Italy has consistently achieved significantly lower primary surpluses, which…

The second wave

The dynamics of the corona pandemic are increasing and the number of newly infected people is reaching new highs at global level. The USA and South America are particularly affected, while in Europe the spread of COVID-19 appears to be under control. Of course, this could change quickly if we become increasingly careless. The political reaction function has changed in recent weeks. In general, the political willingness for nationwide countermeasures has decreased. If one has to react politically to the corona virus, one now tends to regional restrictions. In addition, the overall sustainability of health systems has increased. A nationwide lockdown has thus become unlikely. Especially since the decision for a renewed national lockdown would entail a very high economic price. The renewed recession would be deep and probably also relatively tenacious, as uncertainty would rise sharply and the scope for fiscal and monetary policy has already been largely exhausted….

So a V-shaped recovery after all?

  This week’s indicators: The ifo Business Climate Index rose more than ever before in June, and sentiment among industrial purchasing managers has rallied strongly and has recently been better than in Q4 2019. Given the still difficult situation of companies in many industries, these reports are surprising. So can we expect a rapid V-shaped economic recovery after all? The increase in business activity would be as rapid as the slump in March and April – the rapid recovery on the stock markets would have been a good harbinger of this. But there are some reasons why the rapid rise in sentiment indicators will not translate into a corresponding recovery in the real economy. For one thing, a purchasing managers‘ index in the 50 point range does not mean that the economy is back to „normal“. It merely indicates that there has been no further deterioration compared with the previous…

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