Investors are anticipating a rebound in Europe’s coronavirus-stricken economy, as governments partially lift their lockdowns and companies reopen their doors — even though officials are still debating how to finance the cost of the crisis.
German investor sentiment about the outlook for Europe’s largest economy improved as the country started to loosen its restrictions on households and businesses to contain the spread of the virus, according to a survey published on Tuesday.
While the Zew poll of financial market experts found that sentiment about the economic outlook had recovered after suffering a record fall in March, investors’ assessment of the current economic climate worsened to levels last seen in the 2008 financial crisis.
“The financial market experts see light at the end of the tunnel, a very long tunnel,” said Achim Wambach, Zew president. He added that investors predicted positive growth would return to Germany in the third quarter but the economy would not fully recover until 2022.
German carmakers have resumed production at some factories in the past week and some of the country’s smaller shops have been allowed to reopen after Berlin relaxed the restrictions it introduced in response to the pandemic on March 22.
However strict curbs on social contact remain in place and Germans are being encouraged to wear masks in shops and on public transport. The impact of the pandemic was underlined on Tuesday when Bavarian authorities cancelled the Oktoberfest beer festival, which was due to start on September 19 and had been expected to attract six million visitors.
The German finance ministry also said on Tuesday that its tax revenues had started to shrink in March as sales tax receipts fell by 10.8 per cent from the same month a year ago, reflecting the enforced shutdown of many shops.
The Zew survey of 203 analysts and investors found they anticipated that the lifting of Germany’s lockdown would trigger a sharp economic rebound. Sentiment about the outlook for the German economy rose by 77.7 points month-on-month to reach 28.2 in April.
However the gauge of sentiment about the current economic situation in Germany dropped by 48.4 points to minus 91.5. Investors’ outlook for the eurozone economy also rebounded sharply, while their assessment of the current climate sank even deeper to minus 93.9.
Carsten Brzeski, economist at ING, said the sharp rebound in the Zew indicator was “too good to be true”. He pointed out that the gap between investor expectations and their assessment of the current climate was smaller than when Germany exited its last two recessions in 2003 and 2008, “suggesting that investors’ optimism remains subdued”.
The survey was published as European officials continued to debate how to finance the sharp increase in government spending needed to support the economy ahead of an EU leaders’ summit on Thursday to discuss potential joint action.
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Fabio Panetta, an executive director at the European Central Bank, said the eurozone’s fiscal response to the coronavirus had so far been uneven and inadequate, warning it risked eroding support for the EU and trust in the single currency.
He said the ECB had calculated that “supply chain interlinkages will multiply the damage of the coronavirus lockdowns”, estimating that a 15 per cent decline in GDP in major eurozone countries would cause a 20 per cent drop in output for the whole bloc.
“Only if all economies act with the necessary force to contain the recession will the loss in output for the entire eurozone be minimised,” said Mr Panetta, writing for the website Politico on Tuesday morning.
Pointing out that trade within the eurozone represents 45 per cent of the bloc’s GDP, Mr Panetta said: “The countries least affected by the pandemic have enacted the largest fiscal responses, while the worst-affected countries have taken the smallest steps.”
Mr Panetta, a former deputy head of the Banca d’Italia before he joined the ECB board at the start of this year, said: “The goal of fiscal policy must be to push the financing costs of this crisis far — very far — into the future.”
Source: Economy - ft.com
