Business morale in Germany fell to its lowest level since April this year as supply concerns and COVID continue to weigh heavily upon the German business sector.
The latest business climate index reading was also the fourth consecutive month of declines as Europe’s largest economy struggles with a new wave of rising coronavirus infections.
The Ifo institute reported on Monday that its business climate index dropped to 97.7 from an upwardly revised 98.9 in September. The latest economic data from the world’s fourth-largest economy was the lowest reading since April and lower than the 97.9 consensus forecast by analysts.
Ifo President Clemens Fuest said:
“Supply problems are giving businesses headaches,”
“Sand in the wheels of the German economy is hampering recovery.”
Price Hikes Ahead
Worryingly for Germany, the weaker-than-expected business sentiment survey was proceeded by a negative outlook from Germany’s central bank.
The Deutsche Bundesbank said in its monthly report that economic growth was expected to slow considerably in the final quarter of the year. The central bank stated that full-year growth was now expected to be “significantly” lower than its 3.7% prediction made earlier in June.
The German economy expanded by 1.6% quarter-on-quarter in the second quarter of the year (from April to June). Analysts forecast a quarterly expansion of 2.2% in the third quarter (from July to September). Whilst for the final quarter of the year, analysts are expecting the German economy, the engine room of the European Union project, to only expand by 0.5%.
All eyes will be on the economic news will be on the Federal Statistics Office who will publish a flash estimate for GDP growth in the third quarter this Friday.
As well as the supply problems and the bottlenecks it is creating, prices are expected to rise. In the Ifo survey, half of all industrial companies are planning to raise prices because of the continuing supply problems. This is a record high in the survey and reflects the doomy outlook ahead for the German economy.
