German economic outlook remains subdued amid optimism from business

German economic outlook remains subdued amid optimism from business

Optimism in Germany’s business environment reportedly rose in December as things seem to be shaping up after the world battled what is now described as the first wave of the COVID-19 pandemic. However, the country’s economic outlook remained subdued, remaining at depressed levels as the health crisis continues to whipsaw Europe’s largest economy.

Recent data revealed that the closely-monitored Ifo index increased from 90.9 to 92.1 points. However, it remained below the 92.5 recorded in October. The manufacturing sector of the economy was one of the gainers, with optimism rising relatively significantly while service company that depend largely on personal contact continue to hurt. Businesses in this category include tour operators, hotels and performing arts. The survey also revealed that the level of optimism in companies in logistics, transport and real estate rose.

The manufacturing sector has also continued to hold up better despite COVID-19 safety protocols, especially restriction on public gathering and prohibition of interpersonal activity. This can be largely attributed to the seemingly low level of the sector’s reliance on face to face contact, with demand from China helping to support Germany’s export-oriented economy.

The European economy seemed to have recorded some good figures in recent times, showing a possible strong rebound in the fall. However, the increasing number of COVID-19 cases amid the second wave of the pandemic has led economic experts to predict that the quarter of 2020 will see a contraction.

It is worth noting that the timing of the survey responses from businesses might have affected the results of the data, with some responses collected before the government’s announcement of a new, tougher lockdown.

Interpreting today’s Ifo index is not easy as it was possible to fill in the survey before and after the announcement of the country’s strict lockdown last Sunday,” said CarstenBrzeski, global head of macro research at ING bank. “Therefore, the higher Ifo reading probably tells us more about the news and the rolling out of the vaccine, rather than the new lockdown measures.”

The Ifo index is one of the most popular indicator used by economists, as it often gives a clue of the direction of the economy in the coming months.

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