German Business Confidence Falls For Sixth Straight Month

- Measures for future, present decline

- Service sector morale “nosedived”

- Manufacturing shows first upturn of the second half

 

 

By Eric Culp, European Editor

LiveSquawk News

@EricCulpLS

 

17 December 2021 | 09:45 GMT

 

FRANKFURT – German managers expressed less optimism again in December as Europe’s most populous country continues to grapple with the coronavirus.

 

Germany’s Ifo Institute reported the sixth straight decline in its headline business climate index, which fell to 94.7 points versus the market estimate of 95.3 and November’s upwardly revised reading of 96.6.

 

According to the results of Ifo's monthly survey of business leaders, the expectations component of the index dropped to 92.6 to miss the estimate of 93.6 and last month’s mark of 94.2, The current assessment component fell 96.7, which was below the forecast of 97.5 and the 99.0 reading in November.

 

Ifo's index for German manufacturing rose this month after falling five times in a row, the institute noted, explaining that the climb was due to more optimistic expectations.

 

But the business climate “nosedived” for the service sector, Ifo said. “The deteriorating pandemic situation is hitting consumer-related service providers and retailers hard.”

 

Germany reported more than 51,000 new coronavirus cases on Wednesday, according to Johns Hopkins University, which said the rolling seven-day average for new infections was over 42,700. The seven-day average for Covid-19 fatalities approached 380; the measure peaked near 900 at the beginning of the year. 

 

To stop the spread, parts of Germany have instituted “2G” restrictions for a wide range of shops, public events, bars, and restaurants. The guidelines effectively ban customers who cannot show proof of either vaccination or recovery from the coronavirus. All German are still afforded access to supermarkets and pharmacies.

 

The darkness before the dawn?

“Today’s Ifo index gives a first impression of how the current fourth wave of the pandemic could hurt the German economy, and this impression is not very promising,” wrote Carsten Brzeski, head of macroeconomics at ING. “Despite a strong start to the fourth quarter in terms of industrial activity, ongoing supply chain frictions, higher inflation in general, and higher energy and commodity prices in particular, do not bode well for the short-term outlook for the German economy.”

 

On Tuesday, Ifo slashed its German growth forecast for 2022 to 3.7% from its September estimate of 5.1%, but the economics institute boosted its 2023 projection to 2.9% from 1.5%. The Munich-based economists reiterated their 2.5% growth outlook for the current year, noting that they expect the economy to shrink 0.5% this quarter. The thinktank predicted annual inflation of 3.3% next year in Europe’s largest economy.

 

The drop in business confidence followed increased pessimism amongst financial market experts. In early December, Germany’s ZEW economic institute said the results of this month’s poll showed respondents reporting lower optimism about both the present and the coming six months.

 

Regardless of the current difficulties, the outlook is bright, ING’s Brzeski said. “Previous government stimulus plus the new government's impressive investment policies will unfold in 2022, leading to a stellar growth performance. As soon as global supply chain frictions start to abate and the fourth wave of the pandemic is behind us, industrial production will strongly rebound, private consumption will start to pick up and investment will flourish, with the German economy staging an impressive comeback as Europe's growth champion in 2022.”

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