Eco Week

Diverging fortunes for services and industry

01/29/2021

The Pulse for Germany highlights the dichotomy that characterises the economy at the moment. As can be seen on the left-hand side of the chart, the lockdown announced in early November and drastically tightened in mid-December is heavily weighing on the household sector and services. The GFK consumer confidence index and the IFO indices for trade and services worsened in the three months to January (blue area) compared to the preceding three-month period (dotted line). GFK noted that the propensity to consume has been in free fall since the closure of non-essential shops in mid-December, as there is not much to buy. In the chart, retail sales still expanded, but that is because the latest published data are from November.

The picture is different on the right-hand side of the chart, showing a spreading out of the blue area that covers manufacturing and construction. Manufacturing is supported by strong overseas demand, in particular from China. The IFO business climate index for the sector weakened in January, but the firms reporting expanding activity still outweigh those that experience a decline by a considerable margin. In November, industrial output was back at pre-pandemic levels, whereas orders even reached a highest since November 2018. In the construction sector, the prospects are mixed. Activity remains at relatively high levels for residential and public construction, but is declining for industrial construction, due to the fall in demand for office space.

The coming three months are likely to be crucial. Much depends on the course of the pandemic. Thanks to the tightening of the lockdown, the infection rate has come down. Moreover, the ongoing vaccination campaign should contribute to bringing the pandemic under control. However, the authorities are worried about prematurely lifting the lockdown restrictions (which were recently extended to 14 February), as that could be counterproductive. Once these restrictions are lifted, activity in services could pick up rapidly. In addition, the prospects for the manufacturing sector have brightened. According to a recent IFO survey, export expectations in manufacturing have reached their highest level since October, as the lifting of some uncertainties such as Brexit, the US presidency, and the start of the vaccination campaigns worldwide has led to cautious optimism.

QUARTERLY CHANGES
THE EXPERT ECONOMISTS WHO PARTICIPATED IN THIS ARTICLE

Other articles from the same publication

United States
Call options as lottery tickets: does it matter?

Call options as lottery tickets: does it matter?

Academic research shows that certain investors look at single stock call options as lottery tickets. They are aware they can lose money but nurture the hope of very big gains [...]

Read the article
France
Some pleasant surprises in Q4 2020

Some pleasant surprises in Q4 2020

2020 closed with a quarter-on-quarter (q/q) fall in GDP of 1.3%, according to the first estimate of the Q4 national accounts published on Friday 29 January [...]

Read the article
Italy
Political risk arises again

Political risk arises again

Italy is one of the rare European countries whose propagation of the epidemic is still under control at the end of January, although the situation is still very delicate. On top of these health uncertainties, political risk is also on the rise again [...]

Read the article
Spain
The epidemic is worsening but confidence shows resilience in January

The epidemic is worsening but confidence shows resilience in January

Spain’s health situation is still alarming. The pandemic continues to spread, forcing the public authorities to tighten restrictive measures, notably in the Madrid and Valencia regions [...]

Read the article
Global
Declining mobility and global acceleration of vaccination campaigns

Declining mobility and global acceleration of vaccination campaigns

The biggest world-wide vaccination campaign in history began in 2020 Q4. According to the latest figures, released by Our World in Data on 27 January, more than 80 million doses have been given in 66 countries.

Read the article