German economic outlook rises, remains subdued

A paper star decoration sits on a pole in central Frankfurt, Germany, Thursday, Dec. 10, 2020. (AP Photo/Michael Probst,Pool)
A paper star decoration sits on a pole in central Frankfurt, Germany, Thursday, Dec. 10, 2020. (AP Photo/Michael Probst,Pool) (Copyright 2020 The Associated Press. All rights reserved)

FRANKFURT – Business optimism in Germany rose somewhat in December but remained at depressed levels as the pandemic continues to whipsaw Europe's largest economy.

The closely-watched Ifo index increased to 92.1 points from 90.9 but remains below the 92.5 from October. Manufacturing optimism rose markedly, while services companies that depend on personal contact such as tour operators, hotels and performing arts were hurting. The outlook among companies surveyed in logistics, transport and real estate improved.

Manufacturing has continued to hold up better amid restrictions on and avoidance of interpersonal activity because it depends less on face to face contact, and because demand from China has helped support Germany's export-oriented economy.

The European economy saw a strong rebound in the fall but a renewed increase in coronavirus infections has led economists to predict that the last three months of 2020 will see a contraction.

Some survey responses from businesses may have been collected before the announcement of a new, tougher lockdown on Sunday. The government ordered schools and non-essential retail and personal services businesses to close.

“Interpreting today’s Ifo index is not easy as it was possible to fill in the survey before and after the announcement of the country’s strict lockdown last Sunday,” said Carsten Brzeski, global head of macro research at ING bank. "Therefore, the higher Ifo reading probably tells us more about the news and the rolling out of the vaccine, rather than the new lockdown measures."

The Ifo index is what economists call a leading indicator, meaning it gives clues to where the economy is heading in the months ahead.