Summer boom awaits German economy after Covid winter blues

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German business morale improved to a two-year high in May as Covid-19 restrictions were relaxed and infections fell, heralding a rapid summer recovery after the economy contracted more than expected in the first quarter.
With many companies reporting a build-up of supply bottlenecks, yesterday’s Ifo business climate index jumped to 99.2, from 96.6 revised in April and beating forecast of 98. , 2 in a Reuters analyst poll.
“The German economy is accelerating,” said Ifo President Clemens Fuest.
The survey of some 9,000 companies in manufacturing, services, trade and construction showed that companies were more satisfied with their current situation and optimistic for the next six months.
It indicated a quarterly growth rate of 2.6% from April to June and 2.8% from July to September, Ifo economist Klaus Wohlrabe told Reuters.
In the first quarter, GDP contracted 1.8% qoq and 3.1% year-on-year, figures well below the euro area average, data from the Federal Office of the statistic earlier yesterday.
Coronavirus restrictions in effect in those months also prompted consumers to invest more money than ever in savings, with the savings rate reaching an all-time high of 23.2%. German household disposable income edged up as the government invested billions of euros in job protection programs and additional family allowances, but household spending fell 5.4% in the quarter , the restrictions linked to the control of the pandemic having reduced consumption.
VP Bank Group economist Thomas Gitzel called the drop “colossal,” but also said falling infection rates and advances in vaccinations meant the economy would soon be back on a more base. healthy, because the restrictions were relaxed and then completely lifted.
“We are heading into a relaxed summer in which retailers in German cities can expect consumers to have a blast,” he said.
Business investment in machinery and equipment edged down in the first quarter, although construction activity increased, according to GDP data.
Wohlrabe said rising costs due to supply bottlenecks in manufacturing and construction were now increasingly being passed on.
In construction, two out of five companies reported difficulty sourcing raw materials, and “more and more companies are indicating they want to increase their selling prices,” he said.
KfW bank economist Fritzi Koehler-Geib said his bank had raised its growth forecast for 2021 to 3.5% from 3.3% “despite a bad start to the year.”
Commerzbank economist Joerg Kraemer said his bank continued to expect German GDP growth of 4.0% in 2021.
“A post-corona boom is emerging – even if the air is starting to become scarce in the manufacturing sector, where the business climate is already at a very high level,” he added.


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