After months of feeling hopeful about the future, the mood in Germany’s management has clouded over in October, according to the latest Ifo Business Climate Index reading. With new coronavirus infections rapidly increasing, fears are growing of the economic damage of new restrictions.
The Ifo economic institute’s reading for October fell from 93.2 points in September to 92.7 in October — the first decline in five consecutive months of increases.
"In view of the increasing number of infections, the concerns of the German economy are increasing," said Ifo president Clemens Fuest.
While the business climate indicator in Germany’s powerful manufacturing sector is back in positive territory for the first time since June 2019, manufacturing bosses are pessimistic about the months ahead.
“At face value, today’s Ifo index is not weak enough to fear another collapse of the economy but as all of Europe is in the second wave of the virus, today’s Ifo index definitely marks the end of the rebound and the start of double-dip fears,” said Carsten Brzeski, ING Global Head of Macro, in a note.
Germany has not escaped a second wave of the virus. Last week, new daily infection numbers soared to over 11,000 per day, and on Saturday, to over 14,000 — way higher than during the first wave of the pandemic in spring. The total death toll from the virus passed 10,000 on Saturday.
A survey by Germany’s KfW development bank last week warned that more than one million jobs will likely be lost among the country’s small and medium-sized companies this year due to the COVID-19 pandemic.
The country’s central bank has also warned banks in Germany to brace for a wave of insolvencies in the first quarter of 2021.
With curfews and social distancing in full swing in many German states, the business climate in the service has deteriorated noticeably, and late-summer optimism has fizzled out again.
The situation in the retail sector is similar, with the Ifo indicator showing pessimism about the coming months. The rising optimism has come to an abrupt halt in the construction industry too, with construction firms marking down their assessment of the current and future business situation.
The ZEW survey of investor sentiment in Germany in October also revealed a downbeat mood, with ZEW president Achim Wambach noting that: “The great euphoria witnessed in August and September seems to have evaporated.
German GDP contracted by 9.7% in the second quarter of 2020, compared with the same period in 2019. In September The government revised its forecast for 2020 to a decline of 5.8%, after previously forecasting a 6.3% contraction.
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