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Investor Hopes for German Economy Drop Amid Virus Resurgence

(Bloomberg) — Investor confidence in the outlook for Germany’s economy plunged, in a sign of concern that resurgent infections could hurt the recovery.

A gauge by the ZEW dropped to 56.1 in October — the lowest in five months — from 77.4 in September, below even the most pessimistic estimate in a Bloomberg survey. The measure for the euro area also dropped. The loss of confidence came alongside a report from the country’s central bank warning of strains in the financial system from company failures and debt problems.



chart: Hopes in the economic rebound have faded after an initial bounce


© Bloomberg
Hopes in the economic rebound have faded after an initial bounce

Across Europe, countries are struggling to keep the resurgent pandemic in check. In Germany, Europe’s largest economy, cases are increasing at the fastest pace since the height of the pandemic in early April, with more than 6,500 new infections in the 24 hours through Tuesday morning.

European leaders are introducing tougher measures to contain spiraling coronavirus cases, a move that could put the region’s recovery at risk. The Bundesbank expects German growth to slow this quarter and France’s statistics office predicts its economy will probably stall.

“The great euphoria of August and September seems to have passed,” ZEW President Achim Wambach said in the statement. “The recent sharp rise in the number of corona infections increases the uncertainty about further economic developments.”

Read More: Bundesbank Says Banks Must Prepare for Greater Pandemic Strains

Video: U.S. dollar to stay under pressure as ‘risk-on’ sentiment persists: UOB (CNBC)

U.S. dollar to stay under pressure as ‘risk-on’ sentiment persists: UOB

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At the same time, support remains readily available. Chancellor Angela Merkel’s government plans to sell a record amount of debt next year to fund its crisis response, and is allowing companies to tap enhanced state wage support through the end of next year.

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The European Central Bank is strongly in favor of keeping fiscal policy expansionary. Executive Board member Isabel Schnabel argued on Monday that governments shouldn’t worry about rising debt levels at this point.

The ECB is expected to increase its 1.35 trillion-euro ($1.6 trillion) emergency bond-buying program again before the end of this year, most likely in December when policy makers receive a new round of forecasts. Chief economist Philip Lane said officials will decide “meeting by meeting” whether more stimulus will be needed, potentially putting the next gathering on Oct. 29 in play.

(Updates with German infection data in third paragraph.)

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