German investor morale slumps on concern over second lockdown

By Michael Nienaber and Rene Wagner

BERLIN (Reuters) - German investor sentiment dropped more than expected in November as a second wave of coronavirus infections and a partial lockdown to contain the disease increased uncertainty over the outlook for Europe's largest economy.

The ZEW economic research institute said on Tuesday that its survey of investors' economic sentiment fell to 39.0 points from 56.1 points the previous month, undershooting a reading of 41.7 in a Reuters poll.

"Financial experts are concerned about the economic impact of the second wave of COVID-19 and what this will entail," ZEW President Achim Wambach said in a statement, adding that the data pointed to an economic slowdown in the fourth quarter.

"There is also the additional worry that the German economy could head back into recession," Wambach added.

A separate gauge of current conditions dropped to -64.3 from -59.5 points the previous month. That compared with a consensus forecast of -65.0 points.

The ZEW survey showed that neither the Brexit negotiations nor the outcome of the U.S. presidential election seemed to be having a big impact on the economic expectations for Germany, Wambach said.

The United States is Germany's most important export destination outside the European Union's single market and Joe Biden's election victory has raised hopes for an improvement in transatlantic trade ties in the absence of Donald Trump's protectionist "America First" agenda.

Germany went into a partial lockdown on Nov. 2, forcing bars, restaurants, cinemas and gyms to close. But shops and schools remain open on the condition they can guarantee social distancing.

The November lockdown is less strict than measures imposed during the first wave of the pandemic in the spring, which plunged the German economy into its deepest recession.

Mobility data from several cities and truck toll figures suggest that consumer spending and industrial activity is likely to slow in the fourth quarter but won't collapse as it did in the second quarter.

This would fit with a decision by the government's council of economic experts to raise its forecast for this year.

A source familiar with the decision told Reuters on Tuesday that the council now expects economic output to fall by 5.1% this year. In June it had forecast a 6.5% plunge.

For 2021 the council cut its growth forecast to 3.7% from its previous estimate of 4.9%, the source said.

The council is due to publish its report on Wednesday.

(Reporting by Michael Nienaber; Editing by Michelle Adair and David Goodman)