Glimmers of hope

Chart of the week

Covid-19 infection rates are on the rise again. So, why have growth forecasts become more optimistic? Trends in service-sector sentiments suggest some answers

Covid-19 infection numbers are on the rise again since the late summer days, and currently Europe is particularly in focus again. Hence, concerns about further economic development are increasing as well. That’s despite the fact that over the past few weeks, growth forecasts have become somewhat more optimistic again. Such as the forecast by the International Monetary Fund (IMF), which raised its projections: For the United States, the experts in Washington now only see a decline of 4.3%, whereas in their forecasts from June 2020 they had still assumed that the economy would shrink by 8%. For Germany, they lifted the forecast for the current year from -7.8% to -6%, and for France from -12.5% to -9.5%. As the IMF said in the foreword to the World Economic Outlook: "These are difficult times, yet there are some reasons to be hopeful.”[1]

Will these glimmers of hope evaporate in light of the rising infection numbers? Much depends on the service sector. Whereas in "normal" recessions it is primarily industry and the manufacturing sector that suffer, during 2020 the service sector found itself in the eye of the storm. To assess the further development, economists will pay particular attention to one indicator: The monthly Purchasing Managers' Index (PMI) for the service sector managed to recover after the devastating slump in March, as can be seen in our "Chart of the Week". From August onwards, however, sentiment began to deteriorate again, mostly so in Spain, which was the first major European country to face a second Covid-19 wave.

So far, authorities are trying to fight increasing infection rates with local measures. Which should keep the economic damage contained compared with what we’ve seen in spring. The first preliminary figures for October seem to confirm this hope somewhat. However, it is definitely too early for an all-clear.

20201023_COTW_CHART_EN_72DPI.png

* IHS Markit Services Purchasing Managers' Index
** ISM Services Purchasing Managers' Index
Sources: Bloomberg Finance L.P., DWS Investment GmbH as of 10/21/20

1. International Monetary Fund, World Economic Outlook as of October 2020

font

This information is subject to change at any time, based upon economic, market and other considerations and should not be construed as a recommendation. Past performance is not indicative of future returns. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect.

DWS Investment GmbH as of 10/22/20
CRC 079152 (10/2020)

CIO View

Cookies Policy

This website uses cookies in order to improve user experience. If you accept, we will assume that you are happy with this. For more information about the cookies we use or to find out how you can change your settings, see our Cookies Notice.
Accept All Cookies

Other country

Other country