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Economy in Brief

German Confidence Points to an April Recovery But Is Still Quite Weak and the Virus Is Still on the Loose
by Robert Brusca  March 25, 2021

The GfK German confidence gauge is still quite weak as it posts a headline reading of -6.2 (projected for April). This compares to an historic average reading of 5.2. Place the April reading in its range of values and the current reading is at the 49.6% of that high to low range – almost exactly at the middle. However, ranked in the ‘ordered queue' of actual observations, the April projected reading has a much weaker 3 percentile standing. That means 97% of the previous GfK readings were stronger than this one. Clearly Germany confidence ranks as being in the doldrums…or lower.

However, there is some good news. The GfK headline rose in April to -6.2 from -12.7. Although the reading is still in negative territory and ranks extremely low in historic perspective, contrarily the monthly gain is the fourth largest on record for the period. Despite the weak reading, there is some good news afoot.

The detailed measures of the index lag by one month. While all of them are moderate-to-weak, they also each logged a sizeable increase in March. The economic index has a 49.4 percentile standing, a level just below its median (the median occurs at the 50% mark for these ranked data). Expected income has a slightly greater-than-median standing at its 54.5 percentile. The propensity to buy has a slightly stronger standing at its 56.5 percentile. Climate has been hit much harder than these more detailed and specific readings.

All of these detailed readings jumped in March. The economic index rose by 9.7 points, putting its monthly rise in the top ten percentile of all its monthly changes historically. Income expectations rose by 15.8 points on the month, making it a top 3 percentile result. The buying climate rose by 4.9 points a month, a gain that ranks in the top 20% of all changes monthly for that index. And the bottom line is that although the changes were quite large…they did not change things profoundly since the overall readings remained weak-to-moderate.

On balance, while Germany has still very weak readings across the board for March/April, when we look at the changes in these indexes, there is some room for optimism.

The Markit PMI reading released just yesterday showed Germany with a very strong and rising manufacturing sector but with a substantially lagging service sector. Germany continues to battle outbreaks of infections from the virus. It is doing better than most countries on the virus front except that it is still too much at risk due to a slow vaccination roll-out.

International dosage comparisons
The German government that was going to impose a lockdown through Easter has decided to pull back on that restriction. Still, Germans and all of the EU suffer from delayed inoculations due to vaccine shortages. The U.K. has had an aggressive program as has the U.S. starting with Operation Warp Speed as the Trump administration created substantial financial incentives for drug companies to develop a vaccine and several did just that in less than one year's time. This set the U.S. economy up to be a winner as far as vaccine administration is concerned. The U.K. and the U.S. lead among large developed economics with 44.7 doses per 100 persons administered in the U.K., and 37.2p100p administered in the U.S. compared to 12.9 per 100 people in the EU. Russia has a 5.7 people per 100 and China is at 5.2 people per one hundred in terms of doses administered.

EU export restrictions and the potential vaccine wars
Because of this lagging, the EU and the UK are having a vaccine dispute as the EU wants to interdict shipments to the U.K. on the grounds that the EU has fallen too far behind the U.K. that has already gotten more than its share of what was produced. However, the U.S. got started earlier, threw more resources at the problem and ordered up more vaccine ahead of the EU just like the U.K. The EU is currently planning a zone wide meeting to develop options. The EU already has passed a law that would allow it to restrict the shipments of vaccine out of the union. This plan mostly puts the U.K. and the EU in conflict. So far, only one shipment from the EU abroad has been blocked and that was from plant in Italy and it blocked a shipment to Australia.

German infections
Europe's third wave which has also engulfed Germany is a real phenomenon. And as Germany's flip flop on the Easter lockdown demonstrates there is a lot of conflict over what to do. People do not want to be restricted and yet governments want to stop the spread. German infections peaked in mid-December at about 31,553/per day then fell to fleeting low of about 6,000 per day in mid-February; since then infections have shot up to 20,667 per day and the recent portion of the curve does show clear acceleration. Fortunately (or so far…) the death curve has continued to turn lower as deaths per day are down sharply from their late December peaks.

New virus policy assessments
There is a new set of Brookings papers out on what we learned from the pandemic showing what worked and what didn't at least based on what we know now. Germany was once the darling of the pandemic world and the U.S. was the goat. Now the tables have turned – to some extent. Although the U.S. death toll is high (558K), the tolls are mounting for Italy (106K), France (93K), Germany (76K), Spain (74K) and the U.K. (126K) as those five countries have amassed death totals of 385K.

Large number of infections is bad or good?
The U.S. still has the largest number of infections per 1 million population (92K) compared to 56K to 66K for the other five countries (except Germany at 32K). Despite the greater infection rates in the U.S., the U.S. deaths per 1-million population are 1.6K compared to just as high or higher rates in most of Europe: the U.K. (1.8K), Italy (1.8K), Spain 1.6K) France 1.4K and Germany (0.9K) (Source here). Germany still has far fewer deaths once results are adjusted for size. And Germany has a lower infection rate than the U.S. and the other large European economies, but it is still exposed with a low incidence of vaccination. In the U.S., vaccinations are much more broadly administered and there is a growing debate about how far along to herd immunity the U.S. might be because there are so many who already have acquired antibodies one way or another.

Evaluating virus strategies
The story of the vaccines and what was done right leading up to their development and what was done wrong is only in its infancy. I have seen people write that there are no cost benefit studies and argue that there will not be any because there is no way to justify the enormous cost of these government programs. Epidemiological models were so bad in predicting spread we could never use them to estimate what would have happened if we had not done X or had done Y. A new Brookings Paper by Christina Romer (here) mentions how expensive some of the programs were in terms of the cost per job saved.

We could have done better
My personal untested view is that we ‘knew' (not ‘double blind test knew' but we knew) early on that the old people were more vulnerable and that people with pre-existing illnesses were more at risk. Evidence from NYC which arrayed infection and death data by age as well as medical condition (pre-existing illness or not?) showed from at least late-March onward that healthy people were not dying. We could have kept businesses open with social distancing for those who were healthy and urged old people and ill people to isolate and distance themselves EVEN FROM FAMILY MEMBERS. But CDC CHOSE not to do that. In the U.S., it was shelter all at home, often trapping old people in a house with infected family members. In NY, the governor ordered Covid19-infected patients into nursing homes resulting in an accelerated death toll. All countries pursued the ‘shelter-all' strategy. Looking at the data OF THAT TIME, this made no sense. Sweden offered few restrictions but did not protect nursing homes and suffered a great loss of life there. That was for ‘no reason' we knew about the risk from the way the early virus tore through Italy as well as from NY data and Washington State's nursing home deaths along with the NY experience.

Politics and ideology got in the way
In short, there was very little learning. Epidemiologists fell back on old models of behavior-essentially arguing that they knew nothing about the virus so everyone had to hide. That was not true. We knew enough to have done more if we had treated science as the dynamic learning model it is supposed to be. But those in charge made decisions and they could not be disputed. The phrase ‘Trust Science' was used to crush any other opinion – it really meant ‘trust me and my crony-scientists' which is a very different thing. The media did not help. Anthony Fauci has been given an award for protecting sciences (!) and Andrew Cuomo was given an Emmy for lying to us about how many died as a result of his orders moving covid-19 patients into nursing homes. That is what passes for excellence.

Reality bites
In reality, any other ideas or suggestions that opposed those in power were wiped off the internet. We saw I believe a clear example of why putting health officials in charge ‘just because it's a pandemic' is a bad idea. We need ideas and input from science broadly not just one guy's idea or one branch…we need the whole tree. And we did not get that. We needed the diversity of scientific opinion and we were deprived of it. I believe that one of the shortcomings uncovered when a comprehensive view of this pandemic is finally achieved will be the lack of diversity in approach and opinion and the suppression of ‘non-mainstream' ideas. Unless of course, that report is written by the people who currently are in change…I shudder to think of that happening- but it could.

Commentaries are the opinions of the author and do not reflect the views of Haver Analytics.
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