Delta wave drives down German business confidence to 2021 low
INVESTOR confidence in Germany has slumped to its lowest level this year as fears of a wave of delta cases grip the country and factories struggle to cope with severe global shortages.
The closely watched Zew Economic Sentiment gauge dropped from 63.3 points to 40.4 in August – the third consecutive monthly tumble despite economists predicting a rise.
It pushed down the sentiment indicator to a nine-month low amid growing evidence of a stuttering recovery in Europe’s largest economy. However, Zew’s gauge of the current economic environment still improved from 21.9 points to 29.3 even as confidence in the outlook wavers.
Achim Wambach, president of the ZEW, said: “This points to increasing risks for the German economy, such as from a possible fourth Covid-19 wave starting in the autumn or a slowdown in growth in China.”
It comes at a crucial time politically ahead of next month’s elections to replace Angela Merkel as Chancellor after her 16-year stint leading Germany.
However, it also comes as the German economy is given a huge boost by its drug making start-up Biontech after it successfully developed a vaccine with Pfizer.
Sebastian Dullien, a professor at HTW Berlin, said the jab will add half a percentage point to Germany’s GDP growth alone as much of the vaccine is produced in the country.
Factory and business survey data from Germany in recent days has pointed to a slowing in the recovery, while another significant Covid wave could dent the services rebound.
On Friday, industrial production suffered a shock fall for a third consecutive month, putting Germany’s vital manufacturing base on its worst run since 2018.
Claus Vistesen, eurozone economist at Pantheon Macro, warned that the “now-clear reversal in the expectations gauge suggests that momentum is peaking”.
“Whatever the driver, the fall in expectations represents an important shift for markets having priced-in an accelerating recovery since the latter part of 2020,” he said.
“It’s possible that this is due to fears that new, and vaccine-resistant, variants will prompt a return of restrictions, but to be clear, growth had to slow at some point.”
Meanwhile, business confidence also plunged in Australia as its “zero Covid” strategy combined with a low vaccination rate pushes it to launch new lockdowns and travel restrictions against every new outbreak.
National Australia Bank’s business confidence index plunged from 11 in June to minus eight in July, well below its long-run average of about plus six.
This was the first negative reading since mid-2020, and represents a sharp drop as a short-lived surge in confidence and business activity over the spring gives way to fresh gloom.