German business sentiment dips on Covid fears

26 Oct 2020

Business morale in Germany declined for the first time in six months in October, impacted by concerns regarding mounting coronavirus cases, according to the findings of a survey published on Monday.

The Ifo institute stated its business climate index dropped to 92.7 from a downwardly revised figure of 93.2 in September.

A Reuters survey had predicted a drop to 93.0.

Ifo President Clemens Fuest said in a statement: “Companies are considerably more sceptical regarding developments over the coming months. In view of rising infection numbers, German business is becoming increasingly worried.”

Germany’s economy shrank by 9.7% in Q2 as household spending, company investments and trade all collapsed at the height of the COVID-19 pandemic.

Easing lockdown restrictions, together with an unparalleled series of rescue and stimulus packages, resulted in a strong recovery in Q3, but a surge in fresh coronavirus cases has sparked fear that there will be a return to an activity slowdown.

Uwe Burkert, economist at LBBW stated: “After a strong third quarter for the German economy, the outlook for the final quarter is not too rosy for the time being.”

The leading economic research institutes in Germany predicted earlier this year that the economy will recover more slowly from the pandemic than originally forecast.

Indeed, the institutes predict Germany’s economy will contract by around 5.4% in 2020, a larger drop than April’s forecast of 4.2%.
Moving into November, consumer morale declined on worries about a second wave of coronavirus impacting the economy, according to the results of a survey at the end of last week.
In addition, another survey on Friday revealed growth in private sector activity in October for the fourth consecutive month. However, whilst the manufacturing sector grew at a faster rate, services activity contracted, indicating the country’s economy is running at two distinct speeds.