The Munich Ifo Institute has just published the latest results of its survey of around 9,000 German companies. The mood in the German economy brightened noticeably once again in the reporting month of July. The business climate for the commercial economy climbed to 90.5 points in the current month and is now only around five points below the pre-crisis level. This even slightly exceeded our optimistic expectations. Today’s figures therefore gave the stock market a positive impetus and pushed the DAX above the 12,900 point mark at least for a short time after a mixed start to trading.
The increase is again due to both sub-components. Above all, the business expectations for the development in six months improved again significantly from 91.4 to 97.0 points – after all, the highest value since November 2018. The mood improvement was strong in practically all sectors. Business leaders are becoming increasingly confident that the economy will recover quickly from the slump in spring as a result of the corona shock.
In the current business figures for July, however, this optimistic assessment is not yet strongly relined. The current business situation was also rated slightly better at 84.5 points than in the previous month. Compared to the crisis low, the sub-index has already gained a good five points, but there is still a stretch of around 15 points to the pre-crisis level.
This week, some economic data are due for publication that will once again illustrate the full extent of the corona shock, e.g. the labor market report for July. The labor market certainly remained very tense in the past month. Even in spite of the massive use of short-time working, the crisis has caused the unemployment rate to rise from 5.0% to around 6.5% in just a few months, which means that improvements over the past five years have been lost in a short time.
In addition, the Federal Statistical Office will announce a first estimate of the development of gross domestic product in the second quarter on Thursday. Even if the low point in overall economic activity was passed in the second quarter, a historic slump in real gross domestic product is practically certain for the second quarter, and the decline will in any case be considerably greater than in the first quarter. Due to the depth of the shock, a first quick catch-up process is natural, which is also reflected in today’s mood data. The course of the pandemic remains crucial, however, because a well-defined second wave could, unfortunately, destroy the currently justified hopes very quickly.
Conclusion: The mood in German companies improved significantly again in July. The Ifo Business Climate Index climbed to 90.5 points. Once again, business expectations were the main drivers of the increase. The assessment of the current situation is only slowly brightening. Due to the small number of cases, a large part of economic activity is now possible again, and the monetary and fiscal policy programs also stabilize corporate expectations. After the historic slump in spring, the German economy is currently making up ground quite quickly. However, the pandemic remains decisive for the extent and pace of the economic recovery. Preventing a second wave must also remain the top priority from an economic perspective.
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