German business confidence unexpectedly falls as risks mount

Supply bottlenecks and concerns over newly rising infection numbers are weighing economy

The Bundesbank predicts the German economy is on the verge of regaining the ground lost during the pandemic. Photograph: iStock

The Bundesbank predicts the German economy is on the verge of regaining the ground lost during the pandemic. Photograph: iStock

 

German business confidence unexpectedly slipped in July, signaling concern that supply bottlenecks and resurgent infections could slow the recovery.

A gauge by the Munich-based Ifo Institute fell to 100.8 from 101.7 in June. Economists in a Bloomberg survey had expected an improvement. An index measuring expectations slipped to the lowest in three months, while current conditions continued to improve.

The outlook is “significantly less optimistic,” Ifo president Clemens Fuest said in a statement. “Supply bottlenecks and concerns over newly rising infection numbers are weighing on the German economy.”

The Bundesbank predicts the German economy, Europe’s largest, is on the verge of regaining the ground lost during the pandemic, with manufacturing order books full and the hospitality sector picking up after months of strict coronavirus curbs.

Risks to the outlook have increased though, and the impact of devastating floods in the western part of the country is still unknown.

A survey on Friday showed companies are worried about shortages of raw materials, delivery delays and rising costs. A combination of rapid economic rebounds and lingering supply constraints around the world have squeezed multiple industries, with semiconductors among the most high-profile examples.

Daimler AG cut its estimate for sales this year at its Mercedes Benz unit because of the chip shortage. Volkswagen AG’s China chief said deliveries in July will still be affected by supply bottlenecks.

The services sector could be hit by another wave of coronavirus cases as variants spread. Infections are on the rise again across much of Europe, and some countries have started to introduce new restrictions.

European Central Bank president Christine Lagarde warned last week that “the pandemic continues to cast a shadow, especially as the delta variant constitutes a growing source of uncertainty.”

ECB policy makers strengthened their pledge to keep borrowing costs down. They say they’ll maintain interest rates at present or lower levels until their new inflation goal of 2 per cent is sustainably in sight in their projections. Analysts don’t see the goal being hit before at least 2026. – Bloomberg