Just Kidding

Just Kidding

In a highly inauspicious development that seemed to telegraph confusion and frustration at the highest levels of the German government, Angela Merkel dropped plans for an Easter lockdown on Wednesday.

“Merkel backed off the proposal in a hastily-arranged video conference with the heads of Germany’s 16 states,” Bloomberg reported.

“That was my mistake. I accept responsibility,” Merkel told leaders, according to Bild. “In my long experience I’ve learned that if you try to knock your head through a wall, the wall wins.”

In addition to what the linked article described as “massive criticism,” the political calculus is becoming increasingly challenging with elections just months away (see the piece linked below).

Read more: ‘A Very, Very Serious Situation’

Of course, the stakes are high on the public health front. ICU beds are filling up, with occupancy estimated at 85%. The country’s infection rate exceeded the emergency “brake” threshold for several consecutive days.

These are perilous decisions for lawmakers and government officials. The “right” call can be political suicide. The “wrong” call can cost lives.

Meanwhile, German manufacturing activity accelerated at a record clip in March, according to flash PMIs released Wednesday. The headline manufacturing gauge printed a blistering 66.6, well ahead of the 60.5 the market expected. The forecast range was 58 to 61.6 from nearly three-dozen economists.

New orders rose to 70.6. That was also a record high.

“The ‘flash’ survey was conducted between 12-23 March and therefore saw most responses collected prior to the announcement of an extension to lockdown measures,” the color accompanying the survey said. IHS Markit described “record growth” in manufacturing and “a mini revival in the service sector.”

Phil Smith, Associate Director at IHS Markit, said the data “hint[ed] at the prospect of a better-than-expected economic performance [for Germany] in the first quarter,” but cautioned that “with the ’emergency brake’ restrictions coming into effect in April to stem a third wave of infections, the immediate outlook looks less promising.”

With Merkel’s decision to scrap the Easter lockdown plan, the near-term outlook is still “less promising,” but also even more convoluted than it was just 48 hours previous.

As the figure (above) shows, manufacturing gauges for France and the eurozone more broadly were also robust.

France too is struggling with new containment protocols aimed at curtailing the virus, and that’s still a drag on high-contact businesses. “The threat of setbacks to the reopening of the economy remains tangible,” Eliot Kerr, an economist at IHS Markit said of the French economy. “The recent re-introduction of lockdown restrictions in Paris serves as a reminder that the road to recovery may still be a bumpy one.”

While services activity registered in expansion territory for March in Germany, prints for France and the eurozone remained below the 50 demarcation line. The figure (below) shows the gap with the US.

“The service sector was again hit by virus-related restrictions,” IHS Markit said, noting that “while the decline was the weakest since last August, “sentiment was tarnished by concerns over rising virus infection rates.”

“This two-speed nature of the economy will therefore likely persist for some time to come, as manufacturers benefit from a recovery in global demand but consumer-facing service companies remain constrained by social distancing restrictions,” Chief Business Economist Chris Williamson remarked.

Europe’s fraught vaccine rollout and difficulty coordinating a response to the “third wave,” suggests economic performance could begin to lag the US materially.

“These aren’t the images of repaired economies,” Lehman veteran Mark Cudmore lamented, adding that “more lockdowns in Europe have been announced since these surveys were conducted, so the exuberant outlook portrayed is slightly misleading.”

ING cautioned that the jump in the services sector gauge “reflects, in part, the easing of measures across the eurozone, meaning that the recent wave of extended lockdowns does not bode well for further service sector recovery in the near term.”


 

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