German business confidence dips in September after five months of increases

FRANKFURT/BERLIN: The Ifo institute's monthly barometer slid to 92.7 points from a seasonally adjusted 93.2 points in September, marking the first drop after five months of rises.

"Sentiment among business leaders has clouded over... Companies are considerably more sceptical regarding developments over the coming months," Ifo president Clemens Fuest said.

However, the reading is broadly in line with the 94.5 level of October 2019, suggesting that German business has a long way to go to revisit the lows recorded during the damaging lockdowns in the spring.

The figure "is not weak enough to fear another collapse of the economy," said Carsten Brzeski at ING, but the outcome "definitely marks the end of the rebound and the start of double-dip (recession) fears."

The Ifo index dived to a record low in April when Germany ordered factories and shops shut, before picking up the following month as business activity gradually resumed.

But as infections rise again in Germany, which registered its highest-ever number of new cases in recent days, some cities including Berlin have introduced restrictions on opening hours for bars and restaurants and mandated mask wearing.

"Everything seems like a deja-vu experience," KfW economist Fritzi Koehler-Geib said. "It's therefore not surprising that the business climate is clouding over."

Ifo's data, based on 9,000 respondents, also demonstrated how uneven the recovery is in Germany, with sentiment strengthening in its key manufacturing industry, while worsening signficantly in the services sector, where restrictions and social distancing are more acutely felt.

"We still expect GDP to increase in the fourth quarter, thanks to the continued catch-up growth in the manufacturing sector, but prospects further ahead look increasingly poor," Andrew Kenningham of Capital Economics said.

German gross domestic product (GDP) is expected to shrink 5.4% in 2020, according to a group of think-tanks including Ifo, with the economy not set to recover to pre-crisis levels until the fourth quarter of 2021.

Separately, the German government will revise upwards its forecast for GDP for 2020 when it presents an update to its estimates this week, a source familiar with the government's forecast told Reuters on Monday.

The government now expects GDP to shrink 5.5% in 2020 compared to a previous estimate for a 5.8% decline, the source said.

This means the recession triggered by the coronavirus pandemic will be slightly milder than the loss of output caused by the global financial crisis in 2009 when GDP fell by a record 5.7%.

The economy ministry declined to comment and said Economy Minister Peter Altmaier would present the updated forecast on Wednesday.

The German economy contracted by 9.7% in the second quarter as household spending, company investments and trade collapsed at the height of the pandemic.

An easing of lockdown measures, coupled with an unprecedented array of rescue and stimulus packages, led to a robust recovery in the third quarter.

But a spike in new coronavirus cases has caused concern activity could slow again, and German business morale fell for the first time in six months in October.

For 2021, the government is still sticking by its previous forecast for GDP growth of 4.4%, the source said. – AFP, Reuters