German industry expectations fall as second wave stalls recovery

LONDON (ICIS)–German manufacturing business conditions remained positive in November but expectations for the coming months “turned notably less optimistic”, according to the Ifo Institute on Tuesday.

The survey conducted by Ifo among German companies’ managers showed expectations for the coming months are equally pessimistic in other sectors like services or construction.

Germany’s strong industrial base accounts for around 20% of the country’s economic output; its chemicals industry is the largest in Europe, with €193bn in sales in 2019 employing around 450,000 people.

“This month’s [November] bright spot is manufacturing. The business climate improved here, with companies assessing their current situation as markedly better. Incoming orders rose, albeit more slowly than last month,” said Ifo.

“However, expectations for the coming months turned notably less optimistic.”

Despite positive news in past weeks about three potential vaccines potentially being rolled out in early 2021, Ifo said German businesses felt uncertainty has risen as the second wave “interrupted” the country’s economic recovery.

–
The chemicals-intensive construction sector’s current activity fell in November, and outlook among managers was also more pessimistic.

Ifo’s Business Climate Index fell from 92.5 points in October to 90.7 points in November.

–
Although the prospect of vaccination against the coronavirus could provide a boost to business in 2021, the second wave continues to hit Germany and wider Europe hard, with infection rates in most countries well over the levels considered safe by the World Health Organization (WHO).

“The more cautious sentiment is explained by the resurgence of Covid-19 infections, which has slowed but not been brought under control yet, and tighter containment measures,” said analysts at Oxford Economics.

“Going forward, we expect economic activity to be subdued during the winter months in the services sector but industry to remain resilient.”

AUTO RECOVERY ON SIGHT
The analysts pointed to strong online searches for cars, which would point to consumers’ confidence as they look to engage in big-ticket purchases.

Exports to China – a key market for the export-intensive German industry, especially for the automotive sector – also showed improvements.

Data published by Markit Economics on Monday showed companies’ 12-month outlook across the eurozone had improved during November, possibly spurred by the prospects of mass vaccination since early 2021.

“That’s a plus for production, hiring, and investment plans,” said Oxford Economics.

“The near-term global trade outlook looks healthy because the pandemic is more controlled in other parts of the world, with strong Chinese demand, in particular for cars.”

–
Germany’s GDP growth in the third quarter was revised up by statistical office Destatis on Tuesday, from 8.2% to 8.5%, but the partial lockdown implemented in November could cause a dip in the fourth quarter.

Oxford Economics expects Germany’s output to fall by 0.8% during the last quarter of 2020.

Front page picture: Vehicles produced by German major Audi in Changchun, China
Source: Xinhua/Shutterstock