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21. September 2020JITpay, the payment service provider for logistics, analyzes the latest figures from the Ifo Institute regarding the economic situation in Germany in a blog. It also addresses the extension of the suspension of the obligation to file for insolvency until the end of the year. It is expected that the economy in Germany will only return to normal rhythm by the end of 2022.
(Braunschweig) The German economy is becoming increasingly optimistic: The Ifo Business Climate Index recorded its fourth consecutive increase, as reported by the Munich Ifo Institute. At the same time, the risk of a wave of insolvencies triggered by the pandemic is rising.
“The German economy is on a recovery course,” states Ifo President Clemens Fuest. The Ifo Business Climate Index for August climbed to 92.6 points, which is 2.2 points higher than in July. However, the pre-crisis level has not yet been reached: In February, the index was still at 95.8 points.
Order books begin to fill
In the manufacturing sector, the mood has improved overall, although many companies still assess their economic situation poorly. At the same time, order books are filling up again, and managers are more optimistic about the next six months than before. Service providers were significantly more satisfied with their current business situation, the institute reported. The outlook also improved further.
Retailers showed slightly more satisfaction with their current situation, but expectations remain “almost unchanged pessimistic.” In wholesale, the business climate even declined. In the construction sector, however, the mood regarding the assessment of the current situation improved, and expectations are also somewhat less pessimistic.
For the business climate index, the institute surveys managers from around 9,000 companies each month. They are asked to assess their current business situation and estimate how the next six months will be. In April, the index plummeted to a historic low of 74.2 points. It had already recovered somewhat in May and June due to the easing of the coronavirus crisis, and in July it rose to 90.4 points.
Concerns about new restrictions dampen momentum
The economic recovery now follows an unprecedented economic downturn in the spring. Gross domestic product shrank by 9.7 percent in the second quarter. Despite the recovery, rising infection numbers, travel warnings, and concerns about new restrictions are slowing the economy’s path out of the corona recession.
Most economists therefore expect that the domestic economy will not return to pre-crisis levels until 2022. For the entire year of 2020, the government anticipates a GDP decline of 5.8 percent. It would be the most severe economic downturn in post-war German history.
Obligation to file for insolvency suspended until the end of the year
At the same time, the risk of a wave of insolvencies triggered by the pandemic is rising. Normally, an insolvency application must be filed no later than three weeks after the occurrence of an insolvency reason. Anyone who no longer pays interest to their bank is a candidate for insolvency. Banks, customers, and employees should then be informed immediately about the state of the company. The market economy thrives on this transparency. The state aims to prevent a sick company from infecting another. With the onset of the corona pandemic, the federal government suspended the obligation to file for insolvency in March until September. It has now decided to extend this suspension until the end of the year. The financial service provider Creditreform fears that the state could cultivate around 700,000 to 800,000 zombie companies by the end of March 2021, which would exist as half-dead entities in the economic world without a functioning business model.
Expert supports the extension
However, the well-known insolvency expert Kolja von Bismarck supports the government’s measure and finds the suspension good and right. “Otherwise, we would have had to deal with a wave of insolvencies for which neither the courts nor the administrators would have been prepared.” Kolja von Bismarck is a lawyer specializing in insolvency law, a board member of the Turnaround Management Association (TMA), and a partner at the international law firm Sidley Austin LLP. However, he also believes that a wave of insolvencies triggered by the pandemic is only postponed, not eliminated: “This wave will come. We know that. It doesn’t hurt when it comes. But it must come in a way that we can control and we have enough intensive care beds.”
Photo: © JITpay
