Fourth Covid-19 wave hits German Ifo business sentiment
By Neil Dennis
11:35, 24 November 2021
The euro fell sharply on Wednesday after business sentiment in Germany took a stumble in November, reflecting the likely economic impact of the latest wave of coronavirus infections.
The single currency shed 0.3% to $1.1208 against the dollar and was down 0.4% to JPY128.91 versus the Japanese yen and 0.1% lower to £0.8392 against the pound.
Losses for the euro were in response to the German Ifo Business Climate Index, which fell to 96.5 in November, down from 97.7 in the previous month.
Expectations worsen
Both the current climate and the expectations elements of the index worsened as businesses grappled with supply chain bottlenecks, rising input costs and labour shortages.
Sentiment was least optimistic in the services sectors, particularly in travel and tourism, where trade is expected to be hit by the fourth wave of Covid-19 infections. Retailers’ sentiment also darkened as rising prices were expected to affect sales.
The Ifo survey presented a contrast from the Purchasing Managers’ Index surveys published on Tuesday, which reflected higher growth expectations – albeit marred by rising inflation.
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Outlook
“Given the return of Covid restrictions – which are likely to be tightened further soon – the index is all but certain to fall again in December,” said Melanie Debono, senior Europe economist at Pantheon Macroeconomics.
The implications for annual growth in 2021 were unlikely to be severe, but if the economy were to persist on this path it would leave 2022 on a lower starting base, Debono added.
Andrew Kenningham at Capital Economics agreed: “There is a growing risk that GDP growth grinds to a halt in the fourth quarter and it looks likely to remain weak early next year too.”