German business morale rises unexpectedly in December

3 minute read

The skyline with its financial district is photographed during sunset as the spread of the coronavirus disease (COVID-19) continues in Frankfurt, Germany, October 26, 2020, REUTERS/Kai Pfaffenbach

BERLIN, Dec 18 (Reuters) - High demand for industrial goods, brighter export expectations and government support for companies hit by lockdowns to slow the spread of the coronavirus contributed to an unexpected rise in German business morale in December, a survey showed on Friday.

The Ifo institute said its business climate index rose to 92.1 from an upwardly revised reading of 90.9 in November.

"Companies were satisfied with their business situation," Ifo President Clemens Fuest said. "They are looking at the first half of the year with less scepticism. But the lockdown is hitting some branches hard. The German economy is on the whole showing its resilience."

Germany imposed a hard lockdown on Dec. 16 that forced all non-essential businesses to shut to bring down stubbornly high infection numbers and record-high deaths.

Ifo said only 20% of companies it surveyed sent their responses after Germany took the decision last weekend to go into lockdown.

The new tightening in coronavirus restrictions means that activity will remain subdued at the start of next year before picking up in the second quarter.

Melanie Debono, Europe economist at Capital Economics, said the survey suggested that Germany could avoid a contraction in the fourth quarter.

"All told, the recent tightening in lockdown measures means that services and retail activity will continue to struggle in the near term," she said in a note to clients. "But, on balance, we now think that Germany’s economy may expand a touch in Q4 thanks to the continued strong growth in industry."

The government has provided a stimulus package worth billions of euros to support companies, families and freelancers during the pandemic, which is expected to plunge Germany into its worst recession since World War Two this year.

The combination of government aid and demand for German goods from a recovering Chinese economy were limiting the damage from lockdown measures, said Thomas Gitzel, chief economist at VP Bank Liechtenstein.

"The Chinese economy is gaining speed given high foreign demand related to the coronavirus. This includes masks, furniture and electronic goods in high demand by European and American consumers," he wrote in a note. "Chinese consumers are on the other hand buying German cars and Chinese companies German machines."

Economists warned, however, not to read too much into the upbeat Ifo readings, because the economy is likely to suffer a contraction into the first quarter if Germany extends its hard lockdown beyond Jan. 10.

"Despite the good level of industrial orders, there is still misery in the pipeline," said Alexander Krueger, chief economist at Bankhaus Lampe. The lockdown is reversing the economic recovery, which is not exactly good news."

Reporting by Joseph Nasr; Editing by Maria Sheahan

Our Standards: The Thomson Reuters Trust Principles.

More from Reuters