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German Ifo Business Confidence Deteriorates Unexpectedly

germany may25 26jul21 lt

German business confidence weakened unexpectedly in July as supply bottlenecks and concerns over rising coronavirus infections weighed on the economy, survey results from the ifo Institute revealed on Monday.

The business climate index fell to 100.8 in July from a revised 101.7 in June. The score was forecast to rise to 102.1 from June's initially estimated value of 101.8.

Assessment of companies regarding their current business situations improved in July, while their expectations for the coming months were significantly less optimistic.

The current conditions index rose to 100.4 from a revised 99.7 a month ago. But it was below the economists' forecast of 101.6.

Meanwhile, the business expectations index dropped more-than-expected to 101.2 in July from 103.7 in the prior month. The expected reading was 103.3.

Driven by weak expectations, business climate deteriorated in the manufacturing sector. In contrast, companies' assessments of the current situation rose to their highest level since August 2018.

The scarcity of intermediate products is becoming more critical, and more and more companies complain of a lack of skilled workers, the survey showed.

In the service sector, the business climate weakened in July. Although service providers were more satisfied with their ongoing business, their view of the coming months is much less optimistic.

The business climate index in trade took a downturn in July, while in construction, the business climate improved.

The small decline in the Business Climate Index in July suggests that the rebound in Germany may be losing some momentum, Andrew Kenningham, an economist at Capital Economics, said.

But Germany will still post very rapid GDP growth in both the second quarter and third quarter and should regain its pre-pandemic level ahead of any other major euro-zone country, the economist added.

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