Difficult times for the German economy

On the radar

• 2Q24 GDP growth arrived at 3.3% y/y in Croatia.

• Hungarian central bank kept policy rate unchanged at 6.75%.

• PPI Index in Slovakia landed at -9.1% y/y in July.

• Today, there are no releases scheduled in the region.

Economic developments

Over the last two days, ifo Institute have published ifo Business Climate and Export Expectations for Germany. The developments in German economy leave little space for optimism. The ifo Business Climate Index fell from 87.0 points in July to 86.6 points in August. It has been falling over the last couple of months. Further, German companies assessed not only their current situation as worse but also expectations were more pessimistic. According to the statement of the ifo Institute, the German economy is increasingly falling into crisis. The development of the index in the manufacturing sector draws our attention, as the index fell considerably, and it is at comparably low levels to the Great Financial Crisis of 2008 and 2009 and to the pandemic shock. In particular, the situation for investment goods manufacturers is difficult. Sentiment in the German export industry has deteriorated as well as across sector export orders have declined, so did the expectations for international sales.

Market movements

Hungarian central bank kept the policy rate unchanged at 6.75% on Tuesday meeting, following the 15-month rate reduction cycle. In the central bank’s assessment, the increased volatility and renewing geopolitical conflicts in August indicated caution and patience. The higher-than-expected July’s inflation can be also an important factor. However, the central bank identified one-off impacts behind it. We see space for some monetary easing until the end of the year following Vice Governor Virág statement that Hungarian central bank could deliver one or two cuts until the year-end (including September). In Czechia, according to the Governor Michl the interest rates will stay higher than what they used to be over last decade. He supports more restrictive monetary policy that would prevent repeat of high inflation. As for the FX market’s development, the EURHUF moved down to 392 on Tuesday, EURCZK holds close to 25 and EURPLN at 4.28. The long-term yields did not move significantly.

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