German Ifo business climate index falls sharply in November, economic growth likely to shrink in Q3
German Ifo business climate dropped considerably in the month of November. The index dropped to 90.7 from October’s 92.5. Corona and the lockdown are taking their toll. Germany is threatened by a technical recession and the winter half-year is getting tough, said Commerzbank in a research report. Consensus expectations were for the Ifo business climate to come in at 90.1. The assessment of the current business situation continued to be largely the same at around 90. However, expectations for the coming six months have dropped to 91.5 from 94.7.
Sector wise, the business climate rebounded in manufacturing. However, the service and retail sectors saw the business climate index fall. This reflects the lockdown that is affecting parts of the service sector and depressing the purchasing mood of consumers.
Meanwhile, the number of new infections has stagnated since mid-November, and a downward trend is not seen yet. Thus, the federal states are expected to extend the lockdown until at least Christmas and tighten the restrictions on personal contact, noted Commerzbank.
“Based on the share of the affected sectors in total value added, one month of lockdown reduces quarterly GDP by almost 1 percent. Accordingly, GDP in the fourth quarter is likely to be 2 percent weaker than it would have been without the lockdown; it will probably shrink on Q3. This should not be prevented by the robust development in industry”, added Commerzbank.