German business confidence slips on tighter lockdown

BERLIN: German business confidence declined in January, a key survey showed Monday, after Europe's top economy toughened measures to fight a second wave of the pandemic and new coronavirus variants.

The Ifo institute's monthly confidence barometer, based on a survey of 9,000 companies, fell to 90.1 points from 92.2 points in December, when the index saw a surprise bump.

Analysts surveyed by Factset had expected a smaller dip in January of 0.6 points.

Ifo said managers were downbeat about their current situation, with that measure slipping to 89.2 points from 91.3 points last month, while the expectations sub-index dropped to 91.1 from 93.0.

"The second wave of Covid-19 has for now stopped the rebound in the German economy," Ifo president Clemens Fuest said in a statement.

Germany last week extended orders for bars, restaurants, leisure facilities and non-essential shops to stay closed until at least February 14, and made medical masks mandatory on public transport and in stores.

The tougher restrictions came after the rate of new Covid-19 infections began to plateau but amid fears that coronavirus variants believed to be more contagious could cause numbers to surge again.

Germany has recorded over two million cases since the start of the pandemic, and more than 50,000 deaths.

The Ifo survey showed that manufacturers were significantly more positive than other industries, at minus 0.3 points due to strong demand from China.

But the mood in the services and retail sectors soured, recording minus 4.4 points and minus 17.5 points respectively.

Florian Hense, an analyst with Berenberg Bank, said Germany needed to bundle up for a "dark winter" but could look forward to better prospects in the second quarter.

"After two years of shocks -- the pandemic in 2020 and the Trump-led trade war in 2019, Germany should benefit notably from a likely fading of the pandemic in the coming spring and from a calmer US trade policy," he said.

German GDP shrank by five percent in 2020, its worst contraction since the financial crisis of 2009, due to the impact of the pandemic.

The government has forecast a 4.4-percent rebound this year but the uncertain future of the outbreak could force Berlin to revise the estimate downward.