German business confidence dips on virus nerves

German business confidence in October fell for the first time since April, as businesses become increasingly anxious about the second wave of the coronavirus pandemic, a closely watched survey showed on Monday, October 26.

The Ifo institute’s monthly barometer slid to 92.7 points from a seasonally adjusted 93.2 points in September, marking the first drop after 5 months of rises. 

“Sentiment among business leaders has clouded over… Companies are considerably more skeptical regarding developments over the coming months,” Ifo president Clemens Fuest said.

However, the reading is broadly in line with the 94.5 level of October 2019, suggesting that German business has a long way to go to revisit the lows recorded during the damaging lockdowns in the spring.

The figure “is not weak enough to fear another collapse of the economy,” said Carsten Brzeski at ING, but the outcome “definitely marks the end of the rebound and the start of double-dip [recession] fears.” 

The Ifo index dived to a record low in April when Germany ordered factories and shops shut, before picking up the following month as business activity gradually resumed.

But as infections rise again in Germany, which registered its highest-ever number of new cases in recent days, some cities including Berlin have introduced restrictions on opening hours for bars and restaurants and mandated mask wearing.

“Everything seems like a déjà-vu experience,” KfW economist Fritzi Koehler-Geib said. “It’s therefore not surprising that the business climate is clouding over.”

Ifo’s data, based on 9,000 respondents, also demonstrated how uneven the recovery is in Germany, with sentiment strengthening in its key manufacturing industry, while worsening signficantly in the services sector, where restrictions and social distancing are more acutely felt.

“We still expect GDP (gross domestic product) to increase in the 4th quarter, thanks to the continued catch-up growth in the manufacturing sector, but prospects further ahead look increasingly poor,” Andrew Kenningham of Capital Economics said.

German GDP is expected to shrink 5.4% in 2020, according to a group of think tanks including Ifo, with the economy not set to recover to pre-crisis levels until the 4th quarter of 2021. – Rappler.com