The German government will be gathering today to vote on a historic proposal for unprecedented in size relief package for the reeling German economy.
The vote in the Reichstag is anticipated to ease off some of the strain that is currently weighing down on the biggest economy in the Eurozone.
According to Bloomberg, the size of the relief package is going to reach 156 billion euros, which is equaling 4.5 per cent of the country’s Gross Domestic Product. The bailout package is going to be added to the 600 billion-euro of the active rescue fund.
The historic expanse of government spending is expected to be agreed on just hours after the release of the IFO business climate report for Germany.
According to the IFO institute, the index has tumbled to 86.1 points in March from the 96.1 points that were recorded in February. The findings of the report missed the consensus forecasts, which were projecting a smaller reduction of the index to 87.9 points.
Thereby, the business climate in Germany has fallen to its gloomiest outlook since July 2009, which was in the wake of the recovery process from the 2008 credit crunch.
Germany Business Climate. Image source: TradingEconomics.com
The German DAX index has tanked by 1.08 per cent today since the data release. The plunge wiped out some of the gains from yesterday’s jump, which recorded the remarkable 10.98 per cent daily gains.
The fall, however, is likely to be stopped by the end of the trading day, as the announcement of the increased government relief package is expected to reinvigorate investors’ confidence in the short run.
Additionally, it should also be acknowledged that the consensus forecasts for IFO's business climate index were compiled without acknowledging the likely impact of the coronavirus fallout. It is therefore not so surprising that the reported data missed the forecasts.
Nevertheless, the market has already started pricing in the real impact of the national lockdown in Germany, following the release of yesterday’s Services and Manufacturing PMI data.
That is why the DAX, which has generated the biggest losses in the aftermath of the pandemic compared to the other three indices on the chart below, managed to converge on the S&P 500 yesterday. Meanwhile, the economies in East Asia are already showing early signs of recovery from the initial slump.
DAX vs S&P500 vs NIKKEI 225 vs Shanghai Composite. Image source: Trendsharks ©, created with TradingView.com
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