Germany, eurozone sentiment crashes in February on coronavirus outbreak

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Petrotahlil - Economic sentiment in Germany and the eurozone has crashed in February on the back of macroeconomic uncertainty following the outbreak of the coronavirus, according to data from the Zew institute on Tuesday.

The Zew indicator for economic sentiment for Germany dropped to 8.7 points in February, 18 points below the previous month and slightly below December levels.

A similar decrease was recorded in the research group’s assessment of the current situation in the country, which fell by 6.2 points from January’s reading to minus 15.7 points.

Germany is the largest European chemicals producer, with industry sales at around €200bn/year, and the country's export-intensive economy is very sensitive to shocks to the global economy.

“Expectations regarding the development of the export-intensive sectors of the economy have dropped particularly sharply. Besides, the end of 2019 and the beginning of 2020 saw a worse-than-expected development of the German economy," said Zew's president Achim Wambach.

"Both the downward revision of the assessment of the economic situation and the downturn in expectations show clearly that economic development is rather fragile at the moment.”

EUROZONE ALSO SUFFERS

Declines were reflected – although less pronounced – in the wider eurozone with the 19-country currency union's economic sentiment assessed 15.2 points lower, at 10.4 points in February.

There was a more modest decline of 0.4 points for the assessment of the current situation throughout the eurozone, bringing the total down to minus 10.3 points.

Inflation expectations in the eurozone were also dragged down, falling 13.7 points to 4.7 points.

RECOVERY STILL POSSIBLE

The full impact of the outbreak on supply chains, demand external of the eurozone and on real activity in the market is only starting to show, according to analysts from Oxford Economics.

However, the analysts said a chance of recovery is still possible for Europe in 2020.

“In a more optimistic sign, the fall still left the Zew gauge of economic expectations above the lows seen at the end of last year, suggesting that respondents see the outbreak as a transitory episode, where the bottoming out of the downturn in eurozone industry is delayed, but not derailed,” said Oxford Economics.

“The big picture remains one of continuing weak eurozone growth with significant downside risks.

The analysts added that should these risks materialise, it would put pressure on the 19-country eurozone's European Central Bank (ECB) to provide further monetary stimulus.

"But, for now, [we] see the ECB continuing its wait-and-see strategy as the threshold for action is high," concluded the analysts.

Source : ICIS

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