German Businesses Are More Optimistic After Omicron Peak

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German companies grew more confident in February as the country moved past the worst of its latest Covid-19 outbreak.

A business-expectations gauge compiled by the Munich-based Ifo Institute rose to 99.2, significantly above economist estimates and the highest reading since July. 

“Companies are expecting an end to the coronavirus crisis” and those in retail and the services sector “seem to cope better with the current wave of infections than expected,” Ifo President Clemens Fuest said Tuesday in a Bloomberg TV interview. Firms are also betting on an easing of supply-chain bottlenecks, he said. 

Germany’s government agreed last week to ease restrictions on stores and restaurants as part of a plan to unwind Covid restrictions. The Bundesbank has said the virus will cause the economy to shrink for a second straight quarter between January and March, but predicts a rebound will quickly follow. 

A separate business survey on Monday showed activity in February already picking up, particularly in the services sector that had long been plagued by government curbs and cautious consumers. 

The fastest inflation in decades poses a major challenge, as price pressures have remained strong in the face of surging energy costs. The government has authorized a payment to lower-income households and is discussing whether it should do more to shield businesses and consumers.

Additionally, the escalating conflict with Russia over Ukraine threatens to aggravate the situation as it could send prices for oil and gas even higher. 

“The vulnerability of the German economy is clearly energy supply,” Fuest said. However, “the winter is almost over and other supply routes, other sources of supply have been discussed at least and have been prepared.” 

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