German business morale dips again on virus spike

German business confidence fell again in November, a closely watched survey said Tuesday, as renewed coronavirus restrictions battered an already struggling services sector.

The Ifo institute’s monthly barometer slid to 90.7 points from 92.5 points in October, marking the second drop in a row after five months of increases.

“The second wave of coronavirus has interrupted Germany’s economic recovery,” Ifo president Clemens Fuest said in a statement.

The index dived to a record low in April when Germany ordered factories and shops shut during the first Covid-19 wave, before picking up the following month as business activity gradually resumed.

But a spike in infections has forced another round of shutdowns this month, hitting bars, restaurants, hotels, sports and cultural centres. Shops and other businesses have remained open.

Chancellor Angela Merkel will meet regional premiers on Wednesday to decide on extending the measures into December, adding further pressure on Europe’s largest economy. 

“German companies are facing a difficult winter,” said Fritzi Koehler-Geib, chief economist at German public investment bank KfW.

“Further setbacks are to be expected in the next one to two months,” said LBBW bank economist Uwe Burkert, predicting that morale probably won’t improve much “until the vaccination campaign begins”.

Vaccine hopes have been boosted by recent data showing three potential Covid-19 jabs have proved highly effective in large-scale trials.

The Ifo survey, based on 9,000 respondents, showed the uneven nature of how the pandemic is hitting German companies.

Sentiment in the services sector dropped considerably, particularly among hotels and hospitality, Ifo said.

The mood is “markedly better” among manufacturers, who have been unaffected by the latest restrictions.

Germany’s economy is expected to shrink 5.5 percent in 2020, according to government data, followed by a 4.4 percent rebound next year.