Bundesbank sees early signs of recovery in German economy

Germany’s central bank has detected signs that “a recovery is under way” in the country’s economy even after a further sharp contraction in April.

The Bundesbank said a new real-time indicator it has developed suggested that Europe’s largest economy slumped 4.6 per cent in April with activity continuing to remain subdued in both the domestic-focused services sector and the more export-orientated manufacturing industry.

But it said this was partly offset by “comparatively robust” activity in Germany’s construction industry, which managed to keep many building sites operating despite the coronavirus lockdown. 

It added: “There are also positive impulses from government activities,” after German authorities announced €1.8tn of fiscal measures in response to the pandemic, including loan guarantees, business support, healthcare spending and tax deferrals. 

The central bank has developed a weekly activity index to measure how the economy is doing based on various real-time indicators, such as toll road traffic, electricity usage, air pollution, flights, Google searches, employment and cash circulation.

The Bundesbank said while restrictions on households and businesses were steadily being eased “social and economic life in Germany is still very far from what was previously considered normal”.

Consumer spending had been “particularly affected” by the measures taken to curb the pandemic and it predicted this was unlikely to rebound quickly even after the restrictions were eased. 

But it added: “There is currently much to suggest that overall economic developments will move up again in the course of the second quarter as a result of the easing measures and a recovery is under way.”

Germany’s chancellor Angela Merkel and French president Emmanuel Macron were on Monday afternoon due to discuss a planned European recovery fund to help the region to come out of its worst postwar recession.

The Bundesbank said its real-time index fell to minus 2.2 in the final week of March, when the country’s full coronavirus lockdown took effect, implying a 1.9 per cent decline in the economy in the first quarter. 

The preliminary estimate of German gross domestic product released on Friday, showed a fall of 2.2 per cent in the first quarter — the biggest drop for 11 years but far less than other large eurozone economies, such as France, Spain and Italy, which have had stricter lockdowns.

For April, the Bundesbank index stood at minus 4.6 per cent, which the central bank said indicated there had been a “further sharp fall” in the period up to mid-May.

Yet that still points to a shallower recession than many economists expect — for instance Deutsche Bank recently forecast a 14 per cent decline in German GDP in the second quarter.

Germany’s federal statistics agency said on Friday that the economic downturn in the country accelerated in the second quarter, pointing to the 11 per cent drop in the volume of heavy-goods traffic on German toll roads in April and the 15.6 per cent drop in new manufacturing orders in March.

The Bundesbank said there was still “a very high level of uncertainty about future economic developments”. It added: “This depends, among other things, on the further course of the global infection process and the containment measures taken, but also on changes in consumer and investment behaviour that are influenced by this.”

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