Investor Optimism Over German Economy Rises Despite Restrictions

(Bloomberg) -- Investors grew more confident in Germany’s recovery after the economy probably avoided a double-dip recession.

ZEW’s gauge of expectations for the next six months rose to 61.8 in January from 55.0 a month earlier, despite the likelihood of a longer, stricter lockdown to contain the pandemic. Achim Wambach, the institution’s president, said export expectations in particular have risen significantly.

The German economy has navigated the crisis better than its major European peers, helped by generous government support and a strong manufacturing sector that isn’t as directly hit by the virus curbs as services such as restaurants and the travel sector.

Output slumped 5% in 2020 but probably stagnated in the fourth quarter, the statistics office said last week.

Prospects for the first quarter are dire though. Chancellor Angela Merkel and state premiers are likely to extend restrictions until at least mid-February and may impose more stringent contact rules as well as a nighttime curfew.

The Bundesbank said Monday that a longer and tighter lockdown “could lead to a noticeable setback.”

Read more on Bloomberg Economics’ outlook for the German economy

European Central Bank President Christine Lagarde has said that economic projections for the euro area published in December still hold as they foresaw that restrictions would remain in place during the first quarter. The institution is widely expected to keep policy on hold on Thursday after adding monetary stimulus last month.