After economists have only revised their growth forecasts downwards in small steps in recent weeks, the Munich-based ifo Institute has now driven a stake that roughly shows what is in store for the German economy in the coming weeks (https://www.ifo.de/node/53925).

The ifo Institute is currently presenting two alternative forecasts. A "very, very favourable" scenario with minor production restrictions would result in a 1.5 percent decline in real national product. However, this does not take into account production shutdowns, which have already occurred. Larger production cuts, on the other hand, would already lead to a 6 percent contraction in 2020. This decline would then be one percentage point worse than in the financial crisis of 2009.

Dear readers,

The dramatic development of the last few days and the massive increase in volatility had massively increased the probability of negative turbulence in the capital market seismograph. "This has resulted in a change in positioning on the stock market," Oliver Schlick informs.

As you know, the capital market seismograph distinguishes between three phases: "green" (calm market = buy), "yellow" (turbulent market with positive expectation = invest, but with hedging) and "red" (turbulent market with negative expectation = do not invest).

While the stock market is in panic mode, the losses in corporate bonds are comparatively small. This could change.

We still remember an analysis by Pictet in October 2018, when the Swiss took a close look at the corporate bond market and wrote: "Beware oft the fallen angels.

The chain of argumentation went like this: Many large investors are only allowed to buy so-called investment grade bonds - i.e. securities with good or very good credit ratings. Their rating must be at least BBB (from the Standard & Poors agency) or Baa (from Moodys).

Dear readers,

While the stock markets were shaken by viral cramps, the capital market seismograph remains invested. "We recalculated every day, and the sum of the "good" probabilities green and yellow have moved only minimally from their highs. Accordingly, the probability of negative turbulence increased only minimally despite the panic on the stock markets," Oliver Schlick informs.

As you know, the capital market seismograph distinguishes between three phases: "green" (calm market = buy), "yellow" (turbulent market with positive expectation = invest, but with hedging) and "red" (turbulent market with negative expectation = do not invest) "From the seismograph's point of view there is therefore currently no reason to pull the ripcord. On the contrary, he continues to recommend an offensive equity weighting," Schlick notes.

Dear readers,

In February, business expectations in the industrial sector continued to improve (blue line in the chart below). The ifo economic traffic light also remained in the "green" range. The trend reversal in the industrial sector announced two months ago thus appears to be still intact.

The German economy seems to be unimpressed by the development around the corona virus, writes the ifo Institute. However, it is doubtful that this will remain so. This is because the recent spread of the virus in Italy was not known at the time of the survey.