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Livesquawk - German Business Confidence Edges Higher But Falls Short of Forecasts
German Business Confidence Edges Higher But Falls Short of Forecasts
German legislators last week granted more power to Berlin in the fight against the pandemic.

- Outlook worsens, current conditions improve

- Resurgent Covid-19 cases mute sentiment

 

 

By Eric Culp, European Editor

LiveSquawk News

@EricCulpLS

26 April 2021 | 11.00 GMT

 

Business managers expressed further enthusiasm about Europe’s biggest economy Monday, but they were less optimistic about the future after Germany instituted even harsher lockdown measures over the weekend, according to the April survey from Germany’s Ifo thinktank.

 

The Ifo business climate index rose to 96.9 in April to beat last month’s mark of 96.6, but the headline number fell short of the 97.8 reading analysts were expecting.

 

The expectations component fell unexpectedly to 99.5, to undershoot both the 101.2 market estimate and the upwardly revised 100.3 result from March. The overall April rise came on the back of improvement in the index’s current conditions component, which increased to 94.1, a mark just below the forecast but one higher that the upwardly revised 93.1 reading last month.

 

The tenaciousness of the coronavirus in Germany and problems in the supply chain soured the mood, Ifo said. “Both the third wave of infections and bottlenecks in intermediate products are impeding Germany’s economic recovery.” The morale among manufacturers rose to the highest level in nearly two years, the thinktank said, noting that managers in services and construction expressed less confidence.

 

But manufacturers are also concerned that spotty supplies of products like semiconductors and plastics are affecting production. Ifo Institute President Clemens Fuest told CNBC that 45% of producers are complaining about problems with the delivery of intermediate goods, the highest number since German reunification in 1990.

 

 

Recovery in danger

Capital Economics said the April reading points to sideways growth this year, “Based on past form, it is consistent with GDP flatlining in year-on-year terms. While the current conditions component increased, the expectations index fell, perhaps because the extension of coronavirus restrictions has dampened optimism about the coming months.”

 

The German government on Thursday approved legislation that grants the federal government further powers to combat the spread of Covid-19. The measures include a curfew, which went into effect over the weekend in some areas of the country with high levels of infection.

 

Despite the current problems, Carsten Brzeski, ING’s head of macroeconomics, offered an upbeat assessment for the coming months. “Looking beyond possible short-term data distortions, the general outlook for the German economy has clearly improved. The vaccination programme is finally getting moving and with the prospect of at least 50% of the adult population having had a first jab before the summer.

 

“Add to this potential spill-overs from US fiscal stimulus, the implementation of the European Recovery Fund in the second half of the year, a rebound in the construction sector and the fact that the manufacturing sector still has not reached pre-crisis levels, and stronger Ifo readings in the months ahead look highly likely.”