BERLIN / PARIS (Reuters) – Business morale in Germany and France improved for the fifth consecutive month in September, boosting hopes that the eurozone’s two largest economies have benefited from a strong recovery from the shock from coronaviruses suffered in the first half of the year.
The surveys, released Thursday by the German institute Ifo and the French bureau of statistics, suggest the two countries are expected to experience strong growth in the third quarter, although the outlook is clouded by rising infections and new restrictions to contain the spread of the COVID-19 pandemic.
The Ifo Institute said its business climate index rose to 93.4 from a revised 92.5 down in August. This was the highest reading since February, when the index stood at 95.9.
“The German economy is stabilizing despite the increase in the number of infections,” said Ifo President Clemens Fuest.
Germany’s economy contracted 9.7% in the second quarter as household spending, business investment and trade collapsed at the height of the pandemic. The government launched a series of bailout and stimulus measures in March, funded by new record borrowing, to cushion the impact.
As a sign that Berlin’s response to the crisis appears to be bearing fruit, corporate morale in the manufacturing sector has improved significantly compared to optimistic export expectations, according to the survey.
In the service sector, however, confidence fell for the first time in five months, as tourism and hospitality morale deteriorated due to the rise in infections in recent weeks.
For the third quarter, Ifo now expects the German economy to grow 6.6% in the quarter, and then slower growth to 2.8% in the fourth quarter, the economist at Q4 said. Ifo Klaus Wohlrabe.
Investigation shows that the easy part of the recovery is over. Infections are on the rise in many countries that are important trading partners for German manufacturers, said KfW chief economist Fritzi Koehler-Geib.
In France, the business confidence index rose to 92 from the August 90, reaching its highest level since February, before France entered a two-month lockdown to contain the outbreak, plunging the economy deep into recession.
The industrial sector index improved particularly, from 92 to 96, beating the average expectations of a Reuters poll for a reading of 95. The index of the largest service sector fell from 93 to 95.
The improvement comes even though the French government has had no choice but to increase restrictions on gatherings in the face of a rise in the number of new COVID-19 cases to record levels.
The data also contrasted with IHS Markit surveys, which showed private sector activity in Germany and France slowed in September due to weaker-than-expected service activity.
(Reporting by Michael Nienaber in Berlin and Leigh Thomas in Paris; editing by Larry King)