German Business Outlook Worsens Due to Virus, Supply Squeeze

German businesses unexpectedly became more pessimistic about the economic outlook as the country continues to battle a stubbornly high rate of coronavirus infections and supply constraints weigh on the recovery.

The Ifo institute’s gauge of expectations for the next six months fell to 99.5 in April from 100.3. Economists surveyed by Bloomberg had predicted a gain. At the same time, an assessment of current conditions improved.

While Germany has significantly sped up its vaccination campaign, the infection rate is high and businesses are facing severe curbs on activity. Nighttime curfews have been in place since Saturday across vast parts of the country, and many shops were forced shut after the government tightened restrictions.

German Business Outlook Worsens Due to Virus, Supply Squeeze

Some 45% of companies in the German manufacturing sector also reported supply-chain shortages, the highest value in three decades, Ifo said. Issues relate to the sourcing of semiconductors as well as other intermediate products.

“We have a serious problem here,” Ifo President Clemens Fuest said on Bloomberg Radio. “This is something that is very likely to hold back the recovery in manufacturing.”

Volkswagen AG has told managers that the global chip shortage will cause a bigger hit to second-quarter production compared with the previous three months, the Financial Times reported Saturday.

Services Milestone

Surveys of purchasing managers on Friday suggested that the wider euro area is turning the page on the pandemic, after on-and-off lockdowns dragged it into a double-dip recession.

German Business Outlook Worsens Due to Virus, Supply Squeeze

Services grew in April for the first time in eight months, a milestone for a sector that has been hamstrung by some of the worst restrictions since the outbreak. There was a slight loss of momentum in German manufacturing amid the supply shortages and a lack of freight capacity.

The recovery is expected to gain momentum in the second half of the year, as vaccinations proceed, lockdowns ease and the European Union’s 800 billion-euro ($966 billion) recovery fund is being rolled out.

“Looking beyond possible short-term data distortions, the general outlook for the German economy has clearly improved,” Carsten Brzeski, an economist at ING Germany, said in a note. “With the prospect of at least 50% of the adult population having had a first jab before the summer, a more substantial reopening of the economy should not be too far away.”

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