Business morale brightens in Germany, France despite coronavirus resurgence

[September 24, 2020]  By Michael Nienaber and Leigh Thomas

BERLIN/PARIS (Reuters) - Business morale in Germany and France improved for the fifth month in a row in September, boosting hopes that the euro zone's two biggest economies had enjoyed a solid recovery from the coronavirus shock suffered in the first half of the year.

The surveys, published on Thursday by Germany's Ifo institute and France's statistics office, suggested that both countries are set for strong growth in the third quarter, though the outlook is clouded by rising infections and new restrictions to contain the spread of the COVID-19 pandemic.

The Ifo institute said its business climate index rose to 93.4 from a downwardly revised 92.5 in August. That was the highest reading since February, when the index stood at 95.9.

"The German economy is stabilizing despite rising infection numbers," Ifo President Clemens Fuest said.

The German economy contracted by 9.7% in the second quarter as household spending, company investments and trade collapsed at the height of the pandemic. The government has since March unleashed an array of rescue and stimulus measures, financed with record new borrowing, to cushion the impact.

In a sign that Berlin's response to the crisis seems to be paying off, business morale in manufacturing improved considerably on upbeat export expectations, the survey showed.

In the service sector, however, sentiment fell for the first time in five months as morale in tourism and hospitality deteriorated due to rising infections in recent weeks.

For the third quarter, Ifo now expects the German economy to grow by 6.6% on the quarter and then growth to slow to 2.8% in the fourth quarter, Ifo economist Klaus Wohlrabe said.

A shopper pays with a euro bank note in a market in Nice, France, April 3, 2019. REUTERS/Eric Gaillard/File Photo

The survey shows that the easy part of the recovery is over. Infections are on the rise in many countries that are important trading partners for German manufacturers, KfW chief economist Fritzi Koehler-Geib said.

In France, the business confidence index rose to 92 from August's 90, reaching its highest level since February, before France went into a two-month lockdown to contain the outbreak, plunging the economy deep into recession.

The index for the industrial sector improved particularly sharply, jumping to 96 from 92, exceeding the average expectations in a Reuters poll for a reading of 95. The index for the bigger services sector rose to 95 from 93.

The improvement comes even though the French government has had no choice but to increase restrictions on gatherings in the face of a surge in new COVID-19 cases to record levels.

The data also contrasted with surveys from IHS Markit, which showed that private sector activity in Germany and France slowed in September on weaker-than-expected services activity.

(Reporting by Michael Nienaber in Berlin and Leigh Thomas in Paris; editing by Larry King)

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