Germany on ‘road to recovery’ as business morale brightens further

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German business morale improved more than expected in August as both manufacturing and services picked up steam, a survey showed on Tuesday, boosting hopes that Europe’s largest economy is set for a strong recovery following the massive coronavirus shock.

The Ifo institute said its business climate index rose to 92.6 from a downwardly revised 90.4 in July. This was the fourth monthly increase in a row and came in better than economists’ expectations for 92.2.

“The German economy is on the road to recovery,” Ifo President Clemens Fuest said in a statement, adding that firms assessed their current business situation much more optimistically than in the previous month.

The Ifo survey recorded the strongest gains in business morale among manufacturers and service providers while sentiment among construction firms was also improving further.

Ifo economist Klaus Wohlrabe said he expected the economy to grow by almost 7% on the quarter in the July-September period after it posted a record plunge of 9.7% in the previous three months at the height of the pandemic.

“The upswing is still fragile. We have not yet reached the pre-crisis level,” Wohlrabe told Reuters, adding that the latest spike in new infections underlined the risk of a second wave which could derail the recovery again.

But Wohlrabe also pointed out that export expectations had fallen again slightly as doing business abroad remained difficult for many German companies.

“In view of the fragile situation in other European countries, the German export industry is doing relatively well,” he said.

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