Current data show that the economic situation appears to be improving surprisingly quickly
Photo: Oliver Rossi / Getty ImagesRealizing reality is a difficult matter. Realizing what is can take so long that in the meantime the situation has fundamentally changed again. We feel our way through a smoke screen.
To grasp the immediate past is not that easy. In the second quarter of this year, there was a state of emergency: shutdowns, border closings and production stops. The preliminary result: the gross domestic product (GDP) has shrunk by more than eleven percent compared to the same period last year - a record minus, the worst recession that the Federal Republic has ever experienced.
Now that the gloomy reality is available in reliable numbers, German politics is preparing for a long period of drought. The following are being discussed: an extension of the short-time work allowance, the further suspension of the bankruptcy rules for companies, additional help for small and medium-sized companies, the introduction of the four-day week according to the collective agreement.
To the author
Institute for Journalism, TU Dortmund
Henrik Müller is professor for economic journalism at the Technical University of Dortmund. Before that, the graduate economist worked as deputy editor-in-chief of manager magazin. In addition, Müller is the author of numerous books on economic and monetary issues. Every week he gives a pointed outlook on the most important economic events of the week for SPIEGEL.
They are measures for an economy that is preparing to remain in crisis mode in the longer term. The shocking experiences of the immediate past are extended into the future. But it is entirely possible that the situation will normalize more quickly than previously assumed. Interventions that may turn out to be right in the state of depression may turn out to be wrong sooner rather than later.
After the crash
A few pieces of evidence: Current data shows that the situation seems to be improving surprisingly quickly. The Ifo business climate index, the most important indicator of corporate sentiment, has risen sharply recently. The companies surveyed still judged their current situation in July to be pretty bad. But when it comes to business expectations for the near future, they are more optimistic than they have been in almost two years. The so-called economic clock of the Ifo Institute has switched to an upswing.
The Bundesbank's "Weekly Activity Index" (WAI) also shows an increase in economic activity. For several months now, Frankfurt's central bankers have been using this instrument to shorten the time gap between recording economic activity and statistical processing. Instead of waiting for the official reports, they now also look at constantly available variables such as power consumption, truck toll data or the number of flights.
The news last week was spectacularly positive: According to the calculations, GDP growth would have recently reached the highest level since the start of the time series. The numbers should be treated with caution; the indicator is new and is still in the "processing phase", as the Bundesbank puts it. Nonetheless, the current development of the WAI shows a remarkably rapid start in the weeks since the shutdown phase between March and May.
This finding is supported by the early indicator that the Institute for Employment Research (IAB) determines on the basis of surveys at local employment agencies. The IAB labor market barometer rose sharply in July. The negative trend on the labor market has "largely stopped", according to the IAB. The values are anything but exhilarating, but they also showed "no serious deterioration in the coming months". The signs point to stabilization with a high level of employment.
The relative calm on the labor market also instills confidence in consumers. According to GfK investigations, their mood has brightened quickly since the shutdown ended.
The message emanating from the current indicators is: Fortunately, Germany is not in a state of depression. For the current third quarter, the Bundesbank even expects the economy to "expand strongly" again.
Are we too pessimistic? Maybe. Were the massive support measures by governments and central banks ultimately wrong? No. Should economic policy set different priorities? Definitely.
Covid, Trump and other calamities
As positive as the current trends for Germany may be, we are far from over the top. It will be some time before the economy returns to pre-crisis levels. A quick economic slowdown would be correspondingly dangerous - including the withdrawal of support measures.
The uncertainty that hangs over the economy is still great. The Economic Policy Uncertainty Index for Germany has recently declined, but still indicates heightened alertness.
Hardly surprising: the increasing number of infections shows that the corona crisis still has the world under control. Renewed shutdowns, production losses and border closings remain possible. Even if employees, companies and authorities are now better able to deal with the dangers caused by Covid-19, nasty surprises are easy to imagine.
There are also new political uncertainties. The USA, still the largest economy in the world and the country with the highest demand for German exports, is heading for a constitutional crisis. President Donald Trump has indicated that he will not recognize a possible November election. Even a Trump second term correctly achieved on points could have disastrous consequences for the internal constitution of the USA and the international order. And the Belarus crisis has what it takes to further increase tensions between the EU and Russia. These are just a few examples.
It depends on people willing to try new things
The large-scale measures taken by governments and central banks at the height of the corona crisis were primarily a therapy against uncertainty. The "bazooka" approach of the German government, the program of the European Central Bank to buy up government bonds and the EU crisis fund were effective instruments that took away the fear of a system collapse from citizens and companies.
Now it should be a matter of looking at the future. The state can secure the incomes of private citizens for a while, boost demand, absorb failing companies and banks, but it can neither decree nor subsidize sustainable increases in prosperity.
What is needed is an innovation boost that increases the productive potential of the economy. Especially in the recovery phase that is now beginning, it depends on people who are ready and able to act and try new things in this economically, politically and epidemiologically highly confusing situation.
This applies not only to entrepreneurs and managers, but also to the broad social foundation: people with medium qualifications who are professionally committed and further educated and who at the same time have to look after the generations of their children and their parents. The future success of this society depends above all on these tens of millions of perfectly normal people. Strengthening the performance incentives for this group should be a central concern of politics and business - through a reorganization of the welfare state, with the aim of reducing the tax burden on lower and middle income groups.
The curse of the late deed
Crises offer opportunities. The structural change is accelerating. New needs and demands arise. It is the same this time.
Politics should cushion the change, but not hinder it. Industries that are in lasting difficulties will inevitably have to shrink and cut jobs. Companies that are over-indebted have to file for bankruptcy. Employees need clear signals as to which jobs are sustainable and which are not so that they can reorient themselves if necessary. The same applies to customers and creditors. That is a requirement of fairness and a basic condition for the functioning of the economy. Who transfers money to a company if you can't be halfway sure whether it can even perform the agreed service?
The economic recovery indicated by the leading indicators should initially put a stop to calls for an expansion of the special measures. What if the positive trend solidifies? At the beginning of March, when the corona crisis was just beginning, we discussed the risks and side effects of a delayed exit from crisis mode.
That time is getting closer.
The main economic events of the week ahead
Monday Up Arrow Down Arrow
Charlotte - Donald's freestyle - start of the US Republican party conference. The purpose is to proclaim the incumbent Donald Trump as a presidential candidate.
Tuesday Up Arrow Down Arrow
Wiesbaden - Crash - The Federal Statistical Office publishes details on the development of the German gross domestic product in the second quarter of 2020.
Munich - Frühanzeiger - The Ifo Institute presents new figures on the German business climate.
Wednesday Up Arrow Down Arrow
Reporting season I - business figures from Stada and DekaBank.
Thursday Up Arrow Down Arrow
Nuremberg - Stabilization - New figures for the IAB labor market barometer.
Cologne - online fair - start of the games fair Gamescom, this year only virtual.
Reporting season II - business figures from Fielmann, Delivery Hero, Nord LB.
AGM Season I - General Meetings of Deutsche Post, Fresenius Medical Care, Lanxess, Jungheinrich, Heckler & Koch.
Friday Up Arrow Down Arrow
Nuremberg - mood high? - New figures on the consumer mood of Germans from GfK.
AGM Season II - General Meetings of Fresenius, Steinhoff.
