(Bloomberg) --
Investor confidence in the German economy plummeted to levels last seen during the European debt crisis as the rapid spread of the coronavirus pandemic halts economic activity.
The sharpest drop since records began in 1991 reflects the panic that’s taken hold in markets despite far-reaching attempts to deliver support. A recession in Europe seems all but inevitable as countries including Germany, Italy and France seal off borders and force public lock-downs.
U.S. stocks suffered their biggest sell-off since 1987 last week, and European equities dropped to their lowest in more than seven years. Neither the European Central Bank’s stimulus program unveiled Thursday nor the Federal Reserve’s shock decision on Sunday to cut interest rates to near zero managed to stem the selling.
The key challenge for the coming days and weeks is to bring the epidemic under control before it inflicts lasting damage on the economy. At stake is the viability of some of Germany’s biggest companies.
Leading automaker Volkwagen AG is winding down output at some of its factories, and said it’s almost impossible to predict the economic impact of the crisis. Lufthansa AG is expected to seek a loan from Germany’s state-run bank to weather the fallout from the virus, after it already cut forecasts and suspended its dividend.
“The economy is on red alert,” ZEW President Achim Wambach said in a statement.
Germany has pledged to spend whatever necessary to protect its economy.
Chancellor Angela Merkel’s government has agreed with the country’s 16 states to close all non-essential shops, as well as bars, theaters and museums. Only crucial retailers and services -- supermarkets, post offices and banks -- will remain open.
Expectations for the wider euro area also slumped. Last week, the ECB announced an increase in bond-buying and decided to effectively subsidize its long-term lending program for banks.
The survey took place from March 9–16.
©2020 Bloomberg L.P.
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