So a V-shaped recovery after all?


This week's indicators: The ifo Business Climate Index rose more than ever before in June, and sentiment among industrial purchasing managers has rallied strongly and has recently been better than in Q4 2019. Given the still difficult situation of companies in many industries, these reports are surprising. So can we expect a rapid V-shaped economic recovery after all? The increase in business activity would be as rapid as the slump in March and April - the rapid recovery on the stock markets would have been a good harbinger of this.

But there are some reasons why the rapid rise in sentiment indicators will not translate into a corresponding recovery in the real economy. For one thing, a purchasing managers' index in the 50 point range does not mean that the economy is back to "normal". It merely indicates that there has been no further deterioration compared with the previous month. And the sharp rise in the ifo index is based primarily on expectations for the coming six months: it is all too understandable that companies expect an improvement here compared to the gloomy present. Moreover, the ifo results also show that companies perceive the outlook as extremely uncertain.

This means that it is not possible at present to draw on the customary close correlation between sentiment indicators and the real economy when assessing the economic situation. The sharp rise in climate indicators would distort the analysis to the positive side. Recovery from the crisis can only be gradual, and the road back to economic normality will be long.

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