Politics

Oh no, Angela! Merkel faces German economy crisis over new Covid wave fears – dire report

EU at ‘crunch point’ over future of the Eurozone says expert

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The Ifo Institute in Munich announced that its business climate index has dipped for the first time in six months, from a decades-long high. The measure fell from 101.7 in June to 100.8 in July, reflecting that expectations for the next six months have dropped. A Reuters survey of economists had expected business sentiment in Europe’s largest economy to keep raising to 102.1.

Ifo president Clemens Fuest said: “Supply bottlenecks and concerns over newly rising infection numbers are weighing on the German economy.”

Confidence slumped in services, manufacturing and retail trade companies, with construction the only sector in which the outlook showed signs of improving.

Mr Fuest said German services firms “continue to expect rising sales figures, even if not as strong as in the previous month”.

But he warned that manufacturing was being hampered by the “scarcity of intermediate products”.

The Ifo chief added the shortage “is becoming more critical, and more and more companies complain of a lack of skilled workers”.

The unexpected forecast contradicted a more upbeat reading from last week’s survey of German purchasing managers.

The PMI reading rose to a record high despite the widespread concerns about supply issues.

German manufacturing firms have struggled to keep up with rising global demand due to shortages in material and components.

It was said that scarcity of items, including semiconductors, metals, plastics and woods, as well as bottlenecks in container shipping, had hampered their businesses.

Despite the doom and gloom, Germany’s economy is expected to bounce back this summer after most coronavirus restrictions were lifted in May.

COVID-19 infections have slumped and now more than half of adults have had two doses of a vaccine.

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Economist Markus Guetschow, of Morgan Stanley, said he remained “cautiously optimistic” despite the threat posed by the more transmissible Delta variant.

He told the FT: “The link between cases and hospitalisations seems to have been tweaked by good vaccination progress, which should limit the need for far-reaching domestic lockdown measures.”

The expert forecast that Germany could record second-quarter growth of 1.7 percent when the figures are released later this week.

He suggested that could rise to 2.7 percent in the third quarter of 2021.

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But some economists are more pessimistic because of the threat of rising infections and future lockdowns.

Jorg Kramer, chief economist at Commerzbank, said: “In the end, these are indeed likely to be enforced, although we do not expect another undifferentiated lockdown.”

The coronavirus infection rate remains stable in Germany, with just 958 new infections reported on Monday by the country’s Robert Koch Institute.

But that means the seven-day incidence rate has jumped to 14.3 per 100,000 people from a low of 4.9 on July 6.

The figure has risen for three consecutive weeks as Europe braces itself for the Delta variant to become the dominant strain by August.

Helge Braune, German Chancellor Angela Merkel’s top aide, has warned cases could hit up to 100,000 a day by late September if they continued to rise at the current rate.

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