Delta variant impacts investor confidence in German outlook

A closely-watched survey of financial market experts from leading German companies has found that investor confidence has slumped in the country amid a wave of COVID-19 cases caused by the delta variant.

There is speculation new lockdown measures could be introduced in the fall and companies have been hit by global supply chain problems that could hold back the recovery in Europe's largest economy, said the ZEW economic research institute, which conducted the poll.

The uncertainty comes ahead of next month's national elections, which could lead to complex coalition negotiations and also the end of an era as Angela Merkel steps down as chancellor after 16 years in power.

Reuters reported that Germany has recorded more than 3,000 COVID-19 cases a day in the last week, bringing the total to 3.79 million. It said the nationwide seven-day incidence rose on Tuesday to 23.5 per 100,000 people, up from 23.1 on Monday.

However, it noted that the German infection numbers are still lower than they are in other large European countries. The nationwide seven-day incidence in France has jumped to 237 per 100,000 people and to 265 in Spain, it said.

The ZEW institute said its survey of investors' economic sentiment in Germany dropped from 63.3 points to 40.4 this month. This is the third consecutive monthly slide despite economists predicting a rise, and its lowest level this year.

"This points to increasing risks for the German economy, such as from a possible fourth COVID-19 wave starting in autumn or a slowdown in growth in China," said ZEW president, Achim Wambach, in a news release.

"The clear improvement in the assessment of the economic situation, which has been ongoing for months, shows that expectations are also weakening due to the higher growth already achieved," he added.

In contrast to the pessimistic expectations, another ZEW indicator measuring the current situation improved from 21.9 points to 29.3.

The German economy has gained from the success of the BioNTech/Pfizer jab as much of the vaccine is manufactured in the country, and Sebastian Dullien, a professor at HTW Berlin, told the Daily Telegraph that the jab will add "half a percentage point to Germany's GDP growth alone".

However, Claus Vistesen at Pantheon Macro warned the "now-clear reversal in the expectations gauge suggests that momentum is peaking". Quoted by the Telegraph, he said: "Whatever the driver, the fall in expectations represents an important shift for markets having priced-in an accelerating recovery since the latter part of 2020.

"It's possible that this is due to fears that new, and vaccine-resistant, variants will prompt a return of restrictions, but to be clear, growth had to slow at some point."

Recent data from the Organization for Economic Cooperation and Development, or OECD, identified "signs of moderating growth" globally, including in the United States, the United Kingdom, Canada, Japan and the Eurozone.