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Investor morale dives as the German economy goes on 'red alert'

Jill Petzinger
·Germany Correspondent, Yahoo Finance UK
·2-min read
Trucks are parked on the German Autobahn A5 motorway near the German-Swiss border after Germany announced border controls, as the country faces an aggressive progression of the coronavirus disease (COVID-19), in Weil am Rhein, Germany, March 16, 2020. REUTERS/Arnd Wiegmann
Trucks parked on the German motorway near the German-Swiss border after Germany announced border controls, as the country faces an aggressive progression of the coronavirus disease. Weil am Rhein, Germany, March 16, 2020. Photo:Arnd Wiegmann/Reuters

The ZEW research institute’s survey of economic sentiment among German investors showed its biggest-ever month on month drop in March, as Europe’s largest economy braces for months of disruption over the rapidly spreading coronavirus pandemic.

The ZEW Index dropped by 58.2 points to minus 49.5 points, its largest ever monthly drop, which now puts it at its lowest level since December 2011.

Achim Wambach, ZEW president, said that the slump was to be expected as the “economy is on red alert.”

“The financial market experts currently expect to see a decline in real gross domestic product in the first quarter, while also considering a further drop in the second quarter to be very likely,” Wambach said in a statement. “For the whole of 2020, the majority of experts currently expect a decline in real GDP growth of approximately one percentage point as a result of the corona pandemic.”

READ MORE: Travel stocks worst hit as coronavirus pushes Italy to take over Alitalia

“The economic impact from Covid-19 and financial market turmoil make a technical recession in Germany inevitable,” said ING German chief economist Carsten Brzeksi in a note. “We now expect the German economy to shrink by more than 1.5% YoY in 2020.”

Germany now has 6,012 cases of infection, and 13 deaths. The country is in a state of near-total lockdown after the government closed most of its borders on Monday and ordered all non-essential stores to close, as well as public spaces such as theaters, pubs, and playgrounds. Restaurants can open on restricted hours only.

“With the lockdown, there will be a sharp fall in private consumption to at least 4% compared with the levels at the end of last year,“ Brzeski wrote. ”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 Q1 and Q2.”

Germany’s Volkswagen Group announced during its annual press conference today that it would stop production at most of its plants across for the next three weeks, as it warned that the financial and operational impact of the coronavirus pandemic was “impossible”

READ MORE: Volkswagen reports 'very successful year' as coronavirus clouds 2020 outlook

German airline Lufthansa (LHAG.DE) said on Friday said it will likely request government aid to help it withstand the fallout from the coronavirus, and plans to scrap its annual dividend. Like most airlines, Lufthansa is drastically slashing its flight schedules: It will cut 90% of its long-haul flights from today, and operate only 20% of the flights within Europe.