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Investor confidence in Germany's outlook has improved in hopes that the introduction of the Covid-19 vaccine will accelerate the recovery of Europe's largest economy.
The ZEW's forecast for the next six months rose to 55.0 in December from 39 months earlier. This is still well below the levels recorded in September before the second wave of infections hit the region.
Germany closed restaurants, gyms and cinemas in November, but left stores open in an attempt to curb the disease in a softer approach than some other European countries. However, as the infection rate remains high, it is now considering tightening measures.
So far, the country's relatively large manufacturing sector has helped the country weather the economic fallout from the pandemic. Industrial production rose for the sixth month in a row in October, according to data released on Monday, with orders driven by both domestic and export demand.
"The announcement of the imminent approval of the vaccine gives financial market experts more confidence in the future," ZEW President Achim Wambach said in a statement.
However, forecast uncertainty remains high as it is unclear how quickly these vaccines will become widely available. The crisis can also cause long-term damage if jobs are reduced and more companies go out of business.
Employment in the euro area declined 2.3% in the third quarter compared to the previous year, despite strong growth in economic activity.
According to a Eurostat report, production in the region of 19 countries rose 12.5% over the July-September period over the previous three months, with private consumption and exports accounting for over 7 percentage points.
The economy is likely to contract again in the fourth quarter due to new restrictions on the coronavirus. The European Central Bank is poised to step up emergency monetary stimulus this week to ensure that businesses and households receive the support they need.
- With the assistance of Harumi Ichikura and Christian Siedenburg.