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Ifo institute expects German economy to shrink in fourth quarter

BERLIN (Reuters) - German business morale fell for the second month in a row in November, suggesting that Europe’s largest economy will shrink in the fourth quarter due to curbs to slow a second wave of coronavirus infections, the Ifo institute said on Tuesday.

Ifo’s business climate index fell to 90.7 from a downwardly revised 92.5 in October. The two monthly drops in a row followed five months of rises.

“Business uncertainty has risen. The second wave of the coronavirus has interrupted Germany’s economic recovery,” Ifo President Clemens Fuest said.

The drop was mainly driven by companies’ considerably more pessimistic expectations for the next six months, but their view on the current situation was also somewhat worse.

The survey suggests that the economy is likely to shrink in the final quarter, Ifo economist Klaus Wohlrabe told Reuters.

Restaurants, bars, hotels and entertainment venues have been closed since Nov. 2, but shops and schools remain open. Chancellor Angela Merkel and state premiers are expected to extend the curbs until Dec. 20 during a meeting on Wednesday.

A contraction in the service sector is likely to weigh heavily on gross domestic product in the fourth quarter, while lockdown measures in other countries could hit export-oriented manufacturers as well.

Germany’s gross domestic product grew by a record 8.5% in the third quarter as Europe’s largest economy partly recovered from an unprecedented plunge of 9.8% caused by the first wave of the COVID-19 pandemic in spring.

The Ifo figures chimed with a survey of purchasing managers released on Monday that showed private sector growth slowed in November as service sector activity contracted faster following the new curbs.

Reporting by Michael Nienaber and Rene Wagner; Editing by Madeline Chambers/Paul Carrel

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