The mood in the German economy deteriorated for the second time in a row in August.

The Ifo business climate fell compared to the previous month by 1.3 points to 99.4 points, as the Ifo Institute announced on Wednesday in Munich.

Analysts had expected a decline in the most important economic barometer for Germany, but estimated 100.4 points.

The deterioration is due to less optimistic expectations from companies.

“Worries are growing, especially in the hospitality industry and tourism,” commented Ifo President Clemens Fuest.

In contrast, companies rated their current situation slightly better than in the previous month.

However, delivery bottlenecks for preliminary products in industry and concerns about rising corona infection numbers weighed on the economy.

Warehouses have been swept clean

Because of supply bottlenecks and rising costs for preliminary products, many German industrial companies want to raise their prices. "70 percent of industrial companies are now complaining about bottlenecks in preliminary products," said Ifo expert Klaus Wohlrabe on Wednesday about the survey conducted by his institute. In July it was 64 percent. Semiconductors, metals and plastics in particular are in short supply. This increases the purchase prices. Every second industrial company now wants to increase its sales prices itself because of the sharp rise in costs. Every second retailer is planning to do the same. "The price increases spread across the German economy," said Wohlrabe.

The situation in the industry is still very good, but the outlook for the coming months is cause for concern. Export expectations have also fallen, but they have remained at a good level. Many companies are now trying to meet the demand from the warehouse for finished parts. "The result: the warehouses in the industry are de facto swept empty," said the Ifo expert.

Meanwhile, the fourth corona wave is causing many service providers great concern. "The number of infections is increasing, which has caused expectations in the hospitality industry and tourism to collapse," said Wohlrabe. “The optimism of the past weeks has completely disappeared here.” In contrast, the construction industry is looking ahead more optimistically, especially since the material shortage has eased somewhat here. Only 37 percent of construction companies still complain about it, at the peak in June it was 46.2 percent.

According to Jörg Krämer from Commerzbank, companies are afraid of the effects of the fourth corona wave that has begun. Accordingly, business expectations in retail and service providers have collapsed more than in other industries. “The fears of the companies are justified. If the number of infections continues to rise, it is likely that the politicians will impose further restrictions, as in previous waves, despite the advanced vaccinations, ”emphasizes Krämer. In addition, industrial production, which has been falling since the beginning of the year despite strong demand, will fail as an economic engine at least until the end of the year. "Because of the fourth wave, the shortage of materials and because the catching-up process in the service sector has now largely been completed after the easing in the spring,the growth of the German economy is likely to decline massively in the fourth quarter, ”said the economist.

Progress in vaccination has a positive effect

Fritzi Köhler-Geib, on the other hand, spoke of the fact that many German households had an unusually large amount of money in their pockets after the lockdown and that they would now be asking for services such as the hospitality industry that had been lacking for a long time.

"Above all, the significant progress in vaccination makes this possible," emphasized the KfW chief economist.

"At the same time, the material bottlenecks in industry and construction are proving to be more persistent than initially expected and are dampening production despite good demand."

The expectation-driven decline will pass because, according to Köhler-Geib, there is still more room for improvement. Material bottlenecks would only be resolved gradually and with the looming fourth wave as a result of the contagious delta variant, the pandemic-related worries are also increasing again. "We have therefore revised our GDP forecast for 2021 downwards slightly to 3.0 percent."

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