German Business Optimism Improves, Lifted by Industry Mood

(Bloomberg) -- German companies are turning increasingly optimistic that government support and a reluctance to return to wide-scale lockdowns will carry the economy through the coronavirus pandemic.

The Ifo institute’s business climate index rose to 93.4 in September from 92.5 in August. That was slightly lower than the median forecast of economists in a Bloomberg survey. A gauge of expectations also improved.

German industry has sprung back from the pandemic, though services are struggling again. The Bundesbank expects the overall economic recovery to progress at a slower pace during the rest of the year, in part because of the impact of social restrictions on some sectors.

“What’s driving the recovery in the index at the moment is manufacturing mostly. We have seen improvements there that are related to exports going quite well for some of our trading partners,” Ifo President Clemens Fuest said in an interview with Bloomberg Television. “There clearly is a risk that the second wave of the virus will cause problems. We see this in the readings for the service sector, which isn’t great this time.”

The government has softened the blow with unprecedented fiscal support, and recently agreed to extend aid under its wage-support program through the end of 2021. It also approved a federal budget for next year that foresees new borrowing of 96.2 billion euros ($112 billion).

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