EZA 889 Report:

03 April 2009

German economy – ready for phase two of recession:

Bottoming drawn out by reverberations of manufacturing weakness in services and banking.

•  The 35% annual decline in manufacturing orders in Germany is unprecedented in German post war history.
• According to the Mar09 ifo institute business survey manufacturing weakness has started to reflect on services and trade.
• However, the consumer sector seems to have escaped the gloom in manufacturing. And the financial sector even shows signs of recovery, based on government support.
• In the coming quarters the downward momentum in the economy is likely to prevail over government stabilisation efforts – but from 4Q a gradual return to growth seems the most likely scenario.
• GDP should have returned to the pre-recession (2008) level during the course of 2012.
   

Asset conclusions: with GDP remaining subdued, ECB policy rates as well as bond yields are likely to remain under downward pressure through 2010.
 

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