German Economic Confidence Strongest Since 2015

German economic confidence strengthened in May as the country began to partially withdraw the lockdown imposed to slow the spread of the coronavirus, or Covid-19, survey data from the ZEW – Leibniz Centre for European Economic Research showed Tuesday.

The ZEW Indicator of Economic Sentiment rose 22.8 points to 51.0 in May. This was the strongest since April 2015 and above economists’ forecast of 32.0.

However, the assessment of current economic situation continued its downward trend. The corresponding index fell to -93.5 from -91.5 a month ago. The expected score was -88.0.

Coming from a very low point, it is no surprise that the future looks more optimistic. It is simply in the technical nature of the index, which is a relative assessment of future developments vis-à-vis the current situation, Carsten Brzeski, an ING economist, said.

“Optimism is growing that there will be an economic turnaround from summer onwards,” ZEW President Achim Wambach, said.

Financial market experts expect economic growth to pick up pace again in the fourth quarter of 2020. However, the catching-up process will take a long time, Wambach added. Only in 2022 will economic output return to the level of 2019.

The financial market experts’ sentiment concerning the Eurozone economic development also improved in May. The economic confidence index climbed 20.8 points to 46.0 in May.

By contrast, the indicator for the current economic situation fell by 1.1 points to minus 95.0 points.

Financial market experts expect inflation to ease further over the next six months. The inflation indicator came in at minus 18.7 points in May.

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German Economy Shrinks Most Since 2009 In Q1, Enters Recession

The German economy contracted at the fastest pace since the global financial crisis in 2008-09 in the first quarter, as the nationwide lockdown to contain the coronavirus spread weighed on consumption and overseas demand, pushing the economy into a recession.

Gross domestic product fell 2.2 percent sequentially, which was the biggest fall since the first quarter of 2009, preliminary data from Destatis revealed Friday.

This was also the second largest decrease since German unification. The GDP rate came in line with economists’ expectations.

The stagnation in the fourth quarter was revised to reveal a 0.1 percent contraction.

Two consecutive quarters of contraction indicates that the largest euro area economy entered a technical recession.

The statistical office forecast 10 percent economic contraction in the second quarter.

On a yearly basis, GDP declined by calendar-adjusted 2.3 percent in the first quarter versus a 0.4 percent rise in the fourth quarter. Detailed GDP data is due on May 25.

Price-adjusted GDP dropped 1.9 percent annually, in contrast to an expansion of 0.2 percent seen in the fourth quarter. Economists had forecast a 1.6 percent fall.

Household final consumption expenditure fell sharply and gross fixed capital formation in machinery and equipment decreased considerably from previous quarter.

However, final consumption expenditure of general government and gross fixed capital formation in construction had a stabilizing effect and prevented a larger GDP decrease.

Meanwhile, both exports and imports logged a strong decline on the fourth quarter.

Although the economy logged a notable contraction, Germany fared much better than France and Italy, where GDP declined 5.8 percent and 4.7 percent, respectively, in the first quarter.

Further, data showed that German employment increased by 147,000, or 0.3 percent in the first quarter from the last year. However, such a small annual increase was last reported in the second quarter of 2010.

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Eurozone Factory Sector Contracts At Record Pace

The euro area manufacturing sector contracted at a record pace in April as government restrictions to limit the spread of the global coronavirus, or covid-19, pandemic weighed on activity, final survey results from IHS Markit showed Monday.

The final Purchasing Managers’ Index fell to 33.4 from 44.5 in March. The score was also below the flash estimate of 33.6.

The score was the lowest ever recorded by the series, surpassing readings seen during the depths of the global financial crisis.

Output, new orders, export sales, and purchasing activity all fell at record rates due to a combination of factors such as widespread factory closures, slumping demand and supply shortages amid covid-19.

Confidence about the future sank to a fresh series low. At the same time, the rate of contraction in employment was the sharpest since April 2009.

Both output and input prices declined markedly in April.

“With virus curves flattening and talk now moving to lifting some of the pandemic restrictions, April will have hopefully represented the eye of the storm in terms of the virus impact on the economy, meaning the rate of decline will now likely start to moderate,” Chris Williamson, chief business economist at IHS Markit, said.

At the country level, PMIs were down across the region, with numbers either at record lows or registering readings only surpassed during the worst of the global financial crisis.

Germany’s IHS Markit/BME manufacturing PMI fell to 34.5 from 45.4 in March. Though the lowest since March 2009, this compared with a reading of 19.7 for the survey’s output index. The flash reading was 34.4.

France’s factory activity shrank at a record pace in April driven by fresh record lows for production and new business as well as a drastic reduction in employment. The PMI slid to 31.5 in April, as initially estimated, from 43.2 in March.

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Germany and France Blame Americans for Playing Dirty Over Masks

The scarcity of safety equipment essential to the coronavirus fight is fueling tensions between longtime transatlantic allies, with local officials in France and Germany accusing unnamed Americans of using unfair means to obtain protective masks.

Berlin’s state interior ministry blamed the U.S. for confiscating 200,000 masks ordered from a U.S. producer when they were in transit through Bangkok. French officials have accused unidentified Americans of paying over the odds to secure masks in China that had already been earmarked for France.

The U.S. embassy in Paris said any suggestion that the federal government was involved in such practices was “completely false.” There was no immediate response the allegations from the White House or the State Department.

“We view this as an act of modern piracy,” Berlin Interior Minister Andreas Geisel said. “You cannot act in such a way among transatlantic partners. Such wild west methods can’t dominate, even in a time of global crisis.”

With hundreds of western citizens dying each day, the incidents highlight the fundamental distrust between the U.S. and Europe. It risks hampering efforts to collectively tackle the damage unleashed by a virus that has brought the world’s economy to a standstill.

The degree of suspicion also feeds into a narrative that it’s every nation out for itself as Europeans are also viewing with greater skepticism offers of help from Russia and China, wondering if there are strings attached.

French Prime minister Edouard Philippe said Thursday that his administration has seen orders canceled as a result of the global shortage of protective gear. Some French officials are blaming unidentified Americans for swooping in to outbid them as they try to secure supplies.

“A load was taken from us by Americans who overbid on a batch that we had identified,” Valerie Pecresse, regional president of Paris, told broadcaster LCI Thursday. “We pay on delivery because we want to see the masks, while Americans pay cash and without looking. Of course this is more attractive for those who just seek to turn a profit on the back of the world’s distress.” She didn’t say whether the people involved were federal officials, company representatives or private individuals.

The pandemic has left governments, companies, charities and individuals around the world competing for scarce supplies of protective kit and medical equipment as health care systems face an unprecedented surge of highly infectious patients with acute, sometimes deadly respiratory problems.

3M Co. on Friday defended its decision to export respirators from its U.S. facilities to Canada and Latin America, saying there would be “significant humanitarian implications” from halting supplies. President Donald Trump earlier threatened retribution against the company for sending masks and ventilators outside the U.S.

The head of the Grand Est region in France, Jean Rottner, told RTL radio that his representatives had been outbid by rivals from the U.S. when they were trying to source masks.

“On the tarmac, Americans take out cash and pay three or four times the price for our orders, so we really have to fight,” he said. A spokesman for Rottner declined to comment.

With the whole world trying to buy masks from China, it’s possible that there may have been some “incidents” involving the delivery of orders, an official in the President Emmanuel Macron’s office said.

“The United States government has not purchased any masks intended for delivery from China to France,” the U.S. embassy said in an emailed statement. “Reports to the contrary are completely false.”

France has taken delivery of 1.7 billion euros ($1.8 billion) worth of masks already and the volume is set to increase after this week’s air shipments arrived as planned, Macron’s aide said. The president has promised that France will be able to produce all the masks it needs domestically by the end of the year as the administration works to ramp up production.

Further tensions

On Saturday another dispute emerged over emergency medical equipment with Madrid accusing Ankara of retaining a shipment of respirators bought by two regional Spanish governments from a Turkish company.

Turkey cited the risk of a shortage at home in holding onto the ventilators, Spain’s Foreign Ministry said in a statement. Spain would insist on reimbursement if the equipment was not released, it added. There was no immediate comment from the Turkish government.

— With assistance by Nick Wadhams

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