German businesses show surge of optimism in June

Jill Petzinger
Jill Petzinger, Germany Correspondent, Yahoo Finance UK
A worker prepares liquid iron for casting at the Eisengießerei Torgelow iron foundry in Mecklenburg, Western Pomerania, Germany. Photo: Jens Büttner/Picture alliance via Getty

The mood in the Germany’s executive floors brightened considerably in June, with companies feeling more optimistic as they emerge from the coronavirus pandemic, according to Germany’s Ifo Institute.

The Ifo Business Climate Index rose to 86.2 points in June, from 79.7 in May, which is the biggest increase ever measured by the institute since it began keeping records in 1990.

“Companies' assessments of their current situation were somewhat better. Moreover, their expectations leaped higher,” Ifo president Clemens Fuest said in a statement. “German business sees light at the end of the tunnel.”

Bosses in Germany’s manufacturing sector were significantly more upbeat this month. While they still see their current status quo as “bad,” industrial companies’ expectations for the future are positive.

Construction companies are also feeling more optimistic, and the survey recorded a continuing upward trend in business confidence in the services sector for the next six months.

However, business sentiment for the months ahead is still gloomy for retailers.

“Confidence indicators have to be taken with a huge pinch of salt when it comes to their predictive power of actual GDP growth outcomes,” said ING’s chief eurozone economist Carsten Brzeski, noting that the German economy will have contracted by approximately 7% in the second quarter.

Germany’s council of economic advisers predict that the German economy will contract by 6.5% this year due to the pandemic.

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“Looking ahead, higher unemployment, insolvencies and weak external demand are likely to put a cap on the pace of the recovery once the technical V-shaped rebound is behind us,” Brzeski said in a note. “In this regard, the government’s latest fiscal stimulus should help, not only to support domestic demand but also to accelerate the necessary structural change of the economy.”

While Germany lifted its lockdowns in May, the state of North Rhein-Westphalia had to re-impose two local district lockdowns on Tuesday (23 June) after some 1,500 workers at an abattoir tested positive for coronavirus. The fresh lockdowns highlight the fragile status quo as the threat of the pandemic still remains.