Recovery of German industry to be slow and uneven

The recovery of Germany's industrial demand from the Covid-19 pandemic is expected to be slow and unevenly split across different sectors.

It is expected to take a year for German manufacturing demand to reach its pre-lockdown levels, the Institute for Economic Research (IFO) has said.

All sectors are expected to begin to recover from the third quarter. But the increase will not be enough to offset the decline in the first half of the year, the IFO said.

The seasonally and calendar year-adjusted manufacturing index fell by 1.4pc in January-March from the preceding quarter and is expected to slide by as much as 11.1pc in the second quarter. It is projected to recover in the second half of the year, but is still expected to fall by 7.7pc overall in 2020 from a year earlier. It then grows by 8.9pc in 2021 in the IFO's forecast.

The spread of the Covid-19 pandemic is expected to be contained in the coming months, which could avert a second wave of infections, the IFO said. The institute also assumes in its forecasts that the fallout of the pandemic does not involve a "wave of bankruptcies" in Germany or in connected markets, which it said would result in an upheaval of the financial system and necessitate a "realignment" of supply chains.

The IFO also foresees an uneven recovery of Germany's wider economy, assuming that the restrictions that were implemented in March are only slowly lifted from the end of April. Sectors in the services industry such as leisure, entertainment, culture, accommodation and restaurants will still feel the effects of coronavirus until "well into next year", the IFO said.

Overall demand in the construction industry — the most gas-intensive sector — has fallen by 7pc following the lockdown compared with the period prior to the outbreak, the IFO said. The manufacture of chemicals and chemical products has slipped by 5pc, while basic metals output has fallen by as much as 9pc.

The IFO has predicted that the German economy will only fully recover to its pre-coronavirus levels at the end of 2021. It forecasts a fall in German calendar-adjusted economic output of 6.2pc this year, accounting for the lower number of working days.

By Natasha Fielding