German business morale drops to six-month low on virus woes

German business morale slumped to a six-month low in January as a second wave of COVID-19 has brought to a halt a recovery in Europe’s largest economy, a survey showed on Monday. The Ifo institute said its business climate index fell to 90.1 from an upwardly revised reading of 92.2 in December. A Reuters poll had pointed to a January reading of 91.8.

“The second Corona wave has temporarily ended the recovery of the German economy,” Ifo President Clemens Fuest said in a statement. Unprecedented government rescue and stimulus measures helped lessen the shock of the pandemic in Germany last year, when the economy shrank by 5.0%, less than expected and a smaller contraction than during the global financial crisis. However, Chancellor Angela Merkel and state leaders agreed last week to extend a lockdown until mid-February as Germany, once seen as a role model for fighting the pandemic, struggles with a second wave of infections.

“The first quarter remains a difficult one for the German economy,” said Thomas Gitzel, an economist at VP Bank. He said “the manufacturing sector will not be able to prevent the German economy from contracting in the first quarter. The losses in the service sector are too great for this.” Highlighting the impact of the COVID-19 pandemic on German industry, carmaker Volkswagen said on Friday profit almost halved last year due to the impact of the pandemic, but a rebound in premium car sales in China and stronger deliveries in the fourth quarter helped keep it in the black. The Federal Statistics Office will publish GDP figures on Friday for the fourth quarter, when some lockdown measures had already been implemented.

German business morale drops to six-month low on virus woes, Reuters, Jan 25