Title: German business morale darkens on supply bottlenecks, COVID wave

Nov 24, 2021 09:01AM ET

By: AnalysisWatch

A survey showed on Wednesday that sentiment in the German economy deteriorated for the fifth month in a row in November as supply bottlenecks in the manufacturing sector and a rise in coronavirus infections clouded growth prospects for Europe's largest economy.

The Ifo Institute said its business climate index fell to 96.5 from 97.7 in October. A Reuters poll of analysts had predicted a reading of 96.6 in November.

The survey showed company executives were less satisfied with their current business situation and more pessimistic about their expectations for the next six months, it said.

Despite record-high new orders, German carmakers and other manufacturers are being forced to scale back production because of shortages of raw materials and inputs such as microchips.

Ifo economist Klaus Wohlrabe was slightly less pessimistic, saying the economy would stagnate in the fourth quarter as supply chain bottlenecks showed no sign of easing.

Wohlrabe told Reuter’s news agency that the hospitality and tourism sectors faced difficult months as new restrictions were imposed across the country to halt the rise in COVID cases and prevent hospitals from reaching capacity.

Germany's central bank warned on Monday that the economy could stagnate in the final quarter of this year as a shortage of goods and labour and new restrictions to fight the pandemic could put an end to the fragile recovery.

The Ifo figures contrasted with a survey of purchasing managers that suggested on Tuesday that growth in the German private sector accelerated slightly in November despite persistent supply shortages and unusually high inflation.

The gloomy outlook would be seen by the European Central Bank as confirmation of its cautious stance of leaving as many policy options on the table as possible, regardless of rising inflation rates.