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The economic expectations of German financial experts are surprisingly falling in view of the high number of new corona virus infections. This was announced by the Center for European Economic Research (ZEW). The barometer, which measures expectations for economic development over the next six months, fell in October from 77.4 points in the previous month to 56.1 points. Economists only expected a slight decline to 73.0 points.
The indicator is still in positive territory. “The great euphoria of August and September seems to have evaporated,” said ZEW President Achim Wambach. “The recent sharp increase in the number of corona infections increases uncertainty about future economic developments.” In addition, there is the prospect of a no-deal Brexit and the uncertain situation ahead of the US elections.
The IMF paints a grim picture
The International Monetary Fund (IMF) forecasts a drop in economic output of about 4.4 percent this year. Thus, the Monetary Fund slightly increased its forecast for June by 0.8 percentage points. “We are assuming a slightly less severe but still deep recession,” said IMF chief economist Gita Gopinath.
So far, a repeat of a “financial catastrophe” such as the last major global economic crisis in 2008 and 2009 has been avoided. However, prospects remain uncertain. The IMF lowered the growth forecast for 2021 to 5.2 percent. The recovery of the world economy is also not certain as long as the pandemic continues to spread and prevents a return to normal daily economic life.
Overall, the IMF presents a grim picture: The pandemic will cause long-term economic damage in many countries, reverse all the progress made in fighting poverty since the 1990s, and increase social inequality. For the euro zone, the IMF forecasts an economic recession of 8.3 percent this year, and next year it should increase by 5.2 percent. In the case of Germany, the June forecast for 2020 was raised by 1.8 percentage points, but was lowered by 1.2 points for next year.
New infections burden consumer behavior
Similar pessimism is also reflected in the ZEW figures. “Apparently, the infection had a direct impact on the expectations of the financial market experts surveyed,” said Jens-Oliver Niklasch, an economist at Landesbank Baden-Württemberg. “In fact, the biggest threat to the economy is a second widespread lockdown.”
After the brilliant run of economic recovery in the third quarter, there is now sadness in many places, said Thomas Gitzel, chief economist at VP Bank. Even without a lockdown, the increasing number of new infections will affect consumer behavior. Although a massive drop in growth is not feared, a slight decline in gross domestic product at the end of the year cannot be ruled out.
Development in the euro zone is similar to that of Germany. The barometer fell 21.6 points to 52.3 points.
171 analysts and institutional investors participated in the survey from October 5 to 12. They were asked about their medium-term expectations regarding economic and capital market developments. The economic expectations indicator shows the difference between positive and negative assessments for future economic development over a six-month period in Germany.
