FX.co ★ Germany’s businesses enter new year on pessimistic note

Germany’s economy seemed to regain momentum at the end of 2020. However, despite some improvement, the German business sentiment fell sharply in January 2021. According to the Ifo research institute, the business climate indicator for Germany tumbled in January to the lowest level in 6 months for the obvious reason. The second COVID-19 wave is putting a strain on the domestic economy.

The Ifo business climate index dropped to 90.1 in the first month of 2021, much lower than the revised 92.2 in December 2020. A second lockdown prompted disruption to businesses in the largest eurozone’s economy.

Germany’s economy has to survive the corona crisis in Q1 2021 with the service sector bearing the brunt of it, chief economist at VP Bank Thomas Gitzel comments on worsening business conditions. The authorities’ decision to extend restrictions is denting recovery prospects of local businesses. Importantly, some lockdown measures will remain in force until mid-February. Indeed, it is still premature to ease tough restrictions in the near time. Several Germany’s provinces which have been hit the hardest by the pandemic called on the federal government to extend the lockdown.

Germany’s gross domestic product shrank 5% in 2020. The national output is expected to rebound 3% in 2021 on condition that tough restrictions are lifted. In the final quarter of 2020, the powerhouse of the eurozone’s economy was able to regain footing with zero economic growth. A slump in the hospitality industry and retail sales was offset by a revival in the manufacturing sector and construction.