Ifo Institute expects German economy to contract in fourth quarter

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FILE PHOTO: A commuter wearing a face mask walks through Cologne’s main train station after the federal state of North Rhine-Westphalia decided to make the wearing of protective masks compulsory on buses, trains and shops to combat the spread of the coronavirus disease (COVID-19), in Cologne, Germany, April 27, 2020. REUTERS/Wolfgang Rattay

BERLIN (Reuters) – German business sentiment fell for the second straight month in November, suggesting Europe’s biggest economy will contract in the fourth quarter due to curbs to slow a second wave of coronavirus infections, a said the Ifo institute on Tuesday.

The Ifo business climate index fell to 90.7 from a downwardly revised 92.5 in October. The two consecutive monthly declines followed five months of increases.

“Business uncertainty has increased. The second wave of the coronavirus has interrupted Germany’s economic recovery,” said Ifo President Clemens Fuest.

The decline was mainly due to companies’ significantly more pessimistic expectations for the next six months, but their view of the current situation was also somewhat worse.

The survey suggests the economy is likely to contract in the final quarter, Ifo economist Klaus Wohlrabe told Reuters.

Restaurants, bars, hotels and entertainment venues have been closed since November 2, but shops and schools remain open. Chancellor Angela Merkel and state premiers are expected to extend the restrictions until December 20 at a meeting on Wednesday.

A contraction in the services sector is expected to weigh heavily on gross domestic product in the fourth quarter, while containment measures in other countries could also hit export-oriented manufacturers.

Germany’s gross domestic product rose by a record 8.5% in the third quarter as Europe’s largest economy partly recovered from an unprecedented 9.8% plunge caused by the first wave of the COVID-19 pandemic in the spring.

The Ifo figures coincide with a survey of purchasing managers released on Monday which showed private sector growth slowed in November as activity in the services sector contracted faster following new restrictions. .

Reporting by Michael Nienaber and René Wagner; Editing by Madeline Chambers/Paul Carrel

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