Surging Industry Expectations Drive up German Business Morale

BERLIN (Reuters) – German business morale rose by far more than expected in February, hitting its highest level since October as the industrial sector powered along Europe’s largest economy despite lockdown restrictions, a survey showed on Monday.

The Ifo institute said its business climate index increased to 92.4 from an upwardly revised 90.3 in January. A Reuters poll of analysts had pointed to a February reading of 90.5. The reading surpassed even in the highest forecast in the poll.

“The German economy is robust despite the lockdown mainly because of the strong industrial economy,” Ifo President Clemens Fuest said in a statement.

The stronger-than-expected Ifo reading showed businesses are looking beyond the short-term effect of lockdown measures.

Once a role model for fighting the COVID-19 pandemic, Germany has struggled with a second wave. Chancellor Angela Merkel and state premiers have agreed to extend restrictions to curb the spread of the coronavirus until March 7.

The government last month slashed its GDP growth forecast to 3% this year, a sharp revision from last autumn’s estimate of 4.4%. This means the economy probably won’t reach its pre-pandemic level before mid-2022.

But Ifo economist Klaus Wohlrabe told Reuters companies have revised up production plans significantly and export expectations for industry have also risen.

“The order books are well filled,” he added.

Other sentiment indicators have also been promising.

The ZEW economic research institute said last Tuesday investor morale in Germany rose beyond even the most optimistic forecast in February on expectations consumption will take off in the coming months.

Earlier this month, industrial conglomerate Thyssenkrupp raised its full-year outlook for the first time in nearly four years, and CEO Martina Merz said “we’re noticing signs of an economic recovery”.

Last Thursday, German carmaker Daimler AG said it expects significant improvements in sales and operating profit in 2021.

(Writing by Paul Carrel; Editing by Maria Sheahan)