German investor morale hits 6-mth high on hopes COVID will ease

By Klaus Lauer and Paul Carrel

BERLIN (Reuters) -German investor sentiment hit its highest in six months in January on expectations the incidence of COVID-19 cases will fall by early summer, allowing growth in Europe’s largest economy to pick up in the coming six months, a survey showed.

The ZEW economic research institute said on Tuesday its economic sentiment index rose to 51.7 from 29.9 points in December. A Reuters poll had pointed to a rise to 32.0.

“The economic outlook has improved considerably with the start of the new year. The majority of financial market experts assume that economic growth will pick up in the coming six months,” ZEW President Achim Wambach said in a statement.

“It is likely that the phase of economic weakness from the fourth quarter of 2021 will soon be overcome. The main reason for this is the assumption that the incidence of COVID-19 cases will fall significantly by early summer.”

The German economy failed to return to its pre-pandemic size in 2021 as microchip shortages hit production in the car industry, and further COVID-19 restrictions slowed the recovery in the final months of the year.

Last week, Volkswagen Group posted its lowest annual sales figures in 10 years at 8.9 million deliveries, and said it expected supply chain conditions to remain volatile in the first half of this year. [nL8N2TS1OZ]

Thomas Gitzel, economist at VP Bank, said there was reason to hope the economy would pick up. “Once raw materials and supplies are available again in sufficient quantities and the infection situation recedes, the German economy will pull up strongly,” he said

Health officials say the coronavirus remains a serious threat, however.

Germany has a relatively low vaccination rate compared to neighbouring countries, with 47.6% of the population having had a booster shot.

Germany’s BDI industry association said last Thursday it expected the economy to grow 3.5% this year, warning companies could face another “stop-and-go year” due to the pandemic.

The government, in estimates published in October, predicted growth of 4.1%, up from 2.7% in 2021.

The BDI said the Omicron coronavirus variant was clouding the outlook, with Germany in particular being exposed to the risk of China, its biggest trading partner, becoming paralysed again if authorities stuck to a “zero COVID” lockdown response to a rise in cases.

A ZEW index for current conditions fell to -10.2 points from -7.4. The consensus forecast was for a reading of -8.5.

(Writing by Paul Carrel, editing by Kirsti Knolle and Madeline Chambers and John Stonestreet)