Head of Macro Analysis
Summary: German business climate weakened for the second consecutive month in November due to the implementation of a partial lockdown to cope with the second wave of the virus. Business climate was sharply down in the accommodation and the travel industries which are among the economic sectors most affected by the ongoing crisis.
Q4 GDP is likely to be slightly negative
The Ifo business climate index for November is pretty much similar to what we have already seen with the PMI figures released yesterday. The index of business climate is back to 90.7 versus 92.5 in October and the index of current conditions is slightly down at 90.0 vs 90.4 the previous month. Business climate in the services sector is falling sharply as further restrictions have been enacted in recent weeks to deal with the second wave of the virus. The drop in sentiment is particularly important in the accommodation and the travel industries. In contrast, the industry sector has resisted well the downtrend in the economy, but the slight deterioration in export expectations points to further economic weakness ahead.
The drawdown in business climate constitutes another signal that Germany’s Q4 GDP is likely to be out negative before bouncing back in Q1 2021.
The partial lockdown outweighs the good vaccine news
Looking ahead, those questioned are not showing much optimism for the next six months. The forward-looking German Ifo expectations index dropped to 91.5 vs exp. 93;5 and prev. 95 in November. Rising COVID cases and the likelihood of a prolonged period of restrictions to avoid a third wave continue to weight on business sentiment. Despite recent encouraging vaccine news from Pfizer, Moderna and AstraZeneca, sentiment is likely to remain subdued until a vaccine is widely distributed, which means until at least January/February next year.
The next release of the Ifo business climate index for Germany is scheduled on 18 December.
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