The economy is divided in two

The rising number of new corona infections pushed the Ifo business climate index down by 0.5 to 92.7 points in October. The service sector is suffering in particular, and things are looking much better elsewhere.

In contrast to the service sector, the mood among industrial companies improved in October.

AIn view of the increasing number of new corona infections, concerns are increasing in the boardrooms of German companies. The Ifo business climate index fell to 92.7 points in October after 93.2 points in September. It is the first drop in the key sentiment indicator based on the monthly survey of 9,000 companies. Previously, it had risen five times in a row – after a severe slump in March and April.

While companies once again assessed their current situation better, they were more pessimistic about the future for the first time since April. Nevertheless, the value of the assessment of the situation is still around 10 percent below the pre-crisis level.

A different pace of the recovery process is emerging between the service sector and industry. The mood among textile manufacturing companies climbed back into positive territory in October for the first time since June 2019. Above all, industrial companies assessed their current situation better than in September.

The companies in the service sector, on the other hand, not only assessed their current situation as worse, they also assessed their business prospects for the next six months more pessimistically. If there were again restrictions on public life, the service providers would be most affected. Traders would also suffer from a new lockdown. Although they were even more satisfied with their current business, their expectations for the next few months also noticeably clouded over.

“Today’s publication underlines that the time of positive economic news should be over for now,” said Uwe Burkert, chief economist at Landesbank Baden-Württemberg. The decline is “a warning signal” and could be a foretaste of what might still lie ahead if the recent explosion in the number of infections cannot be contained soon.

Jörg Krämer, chief economist at Commerzbank, warns: “The prospects for growth in the fourth quarter have deteriorated significantly.” He therefore appeals that the state should design its anti-corona measures in such a way that the business serves as a sales channel for the entire German economy unlike staying open during the first wave.