German investor sentiment hits lowest level in 12 years

German investor sentiment about the economy plummeted in March to its lowest level since the 2008 financial crisis, as the severe disruption of the coronavirus pandemic shut down much activity across Europe.

The Zew survey of financial market experts found that sentiment about the outlook for the eurozone and German economies suffered record month-on-month falls in March.

Fears of contagion, school closures, event cancellations, border closures and travel restrictions on workers have frozen much economic activity across Europe and many economists predict the region will this year suffer its worst recession for over a decade.

“The majority of experts currently believe that the corona pandemic is responsible for a decline in the growth of real GDP [in Germany] of about 1 percentage point,” said Achim Wambach, Zew president. “For the economy the signals are red.”

The Zew survey’s measure of investor sentiment about the economic outlook for the eurozone fell by 59.9 points to reach minus 49.5, its lowest reading since the financial crisis. Investor sentiment about the German economy dropped by a record 58.2 points to reach minus 49.5, while the gauge of sentiment about the current economic situation dropped by 27.4 points to minus 43.1.

Mr Wambach said those surveyed expected German GDP to fall in both the first and second quarters of 2020.

Germany’s chancellor Angela Merkel this week announced a shutdown of shops, churches, sports facilities, bars and clubs, while imposing controls on its land borders with many countries, in measures she admitted were “drastic” and unprecedented in Germany’s postwar history.

Jack Allen-Reynolds, senior Europe economist at Capital Economics, said the Zew survey results were consistent with a 4 per cent contraction in the German economy this year. He added: “If shutdowns remain in place across the currency union, even that looks optimistic.”

Carsten Brzeski, economist at ING, predicted that, given much of the country is set to stay at home for many weeks, the German economy would shrink by 1.5 per cent this year.

“The exact timing of the lockdown in the different regional states and obviously the eventual length of the lockdown will determine how the contraction in consumption and activity will be spread across the first quarter and second quarter,” he said.