German Chancellor Angela Merkel told German citizens that the coronavirus disaster was the greatest challenge the nation has faced since World War II. The Ifo Institute (the gold standard measurement of the movement of the German economy) and the opinions of German executives have begun to reflect that sentiment. The Ifo Business Climate Index cratered in March:
Sentiment among German managers has worsened drastically. The preliminary ifo Business Climate Index plummeted from 96.0 points (seasonally adjusted) in February to 87.7 points in March. This marks the biggest drop since 1991 and brings the index to its lowest level since August 2009. Companies’ expectations in particular have darkened as never before. Assessments of the current situation have also worsened considerably. The German economy is speeding into recession.
Similar surveys of executives around the world are likely to post similar results.
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Perhaps the only positive news for Germany is that it has one of the world’s largest economies and a broad array of successful manufacturers and technology giants. Nevertheless, Merkel said that two-thirds of the population could become infected, which would challenge even an economy as successful as Germany’s.
If Germany’s business climate is deteriorating, so is that of every nation in the European Union. Many are already weak, in particular Italy, where COVID-19 has been the most devastating. The economies of France and Spain are not robust. This means a recession akin to the one in 2008 and 2009 is likely to grip Europe again.
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Germany is in for great trouble. The rest of Europe will need to fight for economic survival.
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