GENERAL SITUATION: ECONOMIC RECOVERY BEGAN IN MAY
Economic activity has bottomed out. After an unprecedented slump in April, things improved in May. The cyclical indicators published over the last month are sending out two signals: the German economy is experiencing a tangible recovery, but capacity utilisation remains very low.  The relaxations of measures to protect against infections in Germany and abroad are permitting demand and supply to rise. The industrial sector reported an increase in output of +10.3% between April and May. There was a particularly sharp rise in the production index for vehicles and vehicle parts. According to the German Association of the Automotive Industry (VDA), June saw further increases; both new registrations (+18%) and production (+84%) were up from the May figures. Going forward, further improvements seem likely; the ifo and PMI indexes, as well as the level of new orders, are all pointing upwards. The recovery also embraced parts of the services sector. This is shown e.g. by the development in the retail trade (excluding vehicles), for which the May sales figures are now available: rising by 13.9%, the contrast to April was very pronounced. In the second half of the year, additional incentives to purchase are created by the temporary cut in value-added tax. Despite the macroeconomic recovery, the Federal Statistical Office is likely to report a clearly negative rate of change in gross domestic product on 30 July for the second quarter as a whole. This will primarily be due to the unprecedented slump seen in April. Positive figures for the gross domestic product will not come until the third quarter. Whilst the process of recovery in the German economy is dynamic, it is only just beginning. Capacity utilisation is still low. Industrial output in May was only at around 75% of its pre-coronavirus level; in the automotive sector, the figure was just less than 50% (approx. 74% in June according to VDA). Key factors influencing the future course of the macroeconomic recovery will include the pace of the recovery in foreign demand for German goods. The month of May did see a sharp (nominal) rise of 11.6% in exports of goods. But exports to key trading partners which have been particularly badly affected by the pandemic (e.g. the United States and the United Kingdom) are trending less strongly than those to other partners (e.g. China). There are also disparities in the levels of orders coming from abroad. Orders from the eurozone are indicative of a recovery, but the sluggish improvement in orders from outside the eurozone underline the risks posed to the German economy by the global economic situation.