Investors Raise Hopes for German Recovery After Stimulus Boost

(Bloomberg) -- Investors unexpectedly raised their expectations for Germany’s economy, in a sign of hope that the latest boost in fiscal support will help the country recover from the coronavirus slump.

A gauge measuring prospects for the next six months rose to 77.4 in September, exceeding all estimates in a Bloomberg survey. Current conditions also improved.

German 10-year bonds edged lower after the report, with the yield up 0.9 basis points.

“Experts continue to expect a noticeable recovery of the German economy,” ZEW President Achim Wambach said. “Stalled Brexit talks and rising Covid-19 cases could not dampen the positive mood.”

The government in Berlin expects the economy to contract by 5.8% this year, less than predicted in April. Economy Minister Peter Altmaier has said this was due to a successful stabilization of domestic demand and a decoupling from global developments “to a great extent.”

Germany recently allocated another 10 billion euros ($12 billion) to extend its enhanced furlough program, which provides job-preserving subsidies to firms, until the end of 2021. This adds to the 1.2 trillion euros it already made available to prop up the economy.

Manufacturers in the country continued to ramp up output for a third straight month in July. The pace slowed considerably however, underscoring that making up for all the ground lost during the pandemic will take time. On top of weak global demand, exporters are confronted with a strong euro that’s making their products more expensive abroad.

The European Central Bank said last week it expects the recession in the euro area to be slightly less severe than initially feared, while cautioning that the strength of the rebound continues to be subject to significant uncertainty. Infections are rising in many parts of the region, raising the specter of stricter curbs on economic activity that could also dent consumer confidence.

ECB chief economist Philip Lane said Monday the region still has a “considerable gap” to close in terms of economic output compared to the situation before the pandemic.

©2020 Bloomberg L.P.