German Businesses Cautiously Hopeful Recovery Will Take Hold

(Bloomberg) -- German businesses are growing more confident that billions of euros in government support and a rebound in private spending will spearhead an economic recovery in the latter part of this year.

Sentiment at companies surveyed by the Ifo institute improved further in June, and a gauge of expectations rose for a second month.

Yet uncertainty about how the pandemic will evolve is still elevated, with a recent outbreak in a large meat plant highlighting how quickly infections can flare up again, forcing renewed closures.

“German business sees light at the end of the tunnel,” Ifo chief Clemens Fuest said. While expectations in manufacturing surged at a record pace, “a great majority of companies still assess their current situation as poor.”

Listen to Ifo chief Clemens Fuest on Bloomberg Radio

Ifo’s closely-watched business climate index increased to 86.2 from 79.7 in May, more than economists forecast. Expectations are now at the highest level in four months.

The report meshes with other signs that Europe’s economy is slowly picking up as pandemic lockdowns end. A French measure of business confidence published Wednesday jumped by the most on record.

Stimulus programs should help. German Chancellor Angela Merkel’s coalition agreed this month on a sweeping 130 billion-euro ($145 billion) plan aimed at spurring household consumption and getting businesses to invest again.

The Bundesbank predicts the initiative will bolster confidence, though it expects little impact in the second quarter, when the economy probably contracted nearly 10%.

Other indicators have also signaled cautious optimism. A survey of purchasing managers released Tuesday showed German manufacturing and services output shrank at the slowest pace in four months.

Still, while the data suggest Europe’s largest economy has seen the worst of the coronavirus crisis, it’s still far from firing on all cylinders, as company news shows.

Lufthansa is planning to cut some 11,000 jobs in Germany alone, and BMW AG secured union support for the biggest staff reduction in more than a decade. Lights manufacturer Osram said earlier this month it expects only a slight recovery in the third quarter.

Germany’s leading economic experts predict the economy will start improving this summer and bounce back strongly next year. Finance Minister Olaf Scholz said Monday that he expects output to return to pre-crisis levels by the end of 2021 or the beginning of 2022.

©2020 Bloomberg L.P.