The free fall of the German economy continues and another horrible Ifo reading weakens hopes for a rebound of the economy from its own strength, writes Carsten Brzeski - Chief Economist ING Germany.
Key quotes:
“The just-released most prominent leading indicator, the Ifo index, instead suggests the risk of a negative sentiment loop is larger than ever. In August, the Ifo index dropped for the eleventh time in the last twelve months since August last year. At 94.3, from 95.8 in July, the Ifo index stands at its lowest level since late-2012. One year ago, the Ifo index stood at 104.2, close to an all-time high. In August, both the current assessment and expectation components dropped significantly. The expectation component dropped to the lowest level since June 2009.”
“Today’s Ifo index marks another low-point and can be described with one simple word: “horrible”. Within one year, the German economy has made a complete turnaround, unfortunately not for the better but for the worse.”
“In particular, the German manufacturing sector still seems to be in free fall. At least in the short run, there is very little hope for a rebound. High inventories and smaller order books do not bode well for industrial activity in the coming months. It would take some relief from the ongoing trade conflicts and a general sentiment improvement to boost industrial activity at least towards the end of the year. At the same time, the manufacturing downturn and never-ending external woes have started to bruise the domestic economy. So far, it is only tentative signs like companies’ profit warnings, a small increase in short-time work schemes and weaker consumer confidence, but these tentative signs could easily mutate into severe problems.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD holds above 1.0700 on weaker US Dollar, upbeat Eurozone PMI
EUR/USD holds above the 1.0700 psychological barrier during the Asian session on Wednesday. The weaker-than-expected US PMI data for April drags the Greenback lower and creates a tailwind for the pair.
GBP/USD posts modest gains above 1.2450, BoE policymaker dampens hopes of summer rates cut
The GBP/USD pair recovers to 1.2450 during the early Wednesday. The downbeat US April PMI data and increasing appetite for the risk-linked space exert some selling pressure on the US Dollar.
Gold price struggles to lure buyers amid positive risk tone, reduced Fed rate cut bets
Gold price lacks follow-through buying and is influenced by a combination of diverging forces. Easing geopolitical tensions continue to undermine demand for the safe-haven precious metal. Tuesday’s dismal US PMIs weigh on the USD and lend support ahead of the key US data.
Crypto community reacts as BRICS considers launching stablecoin for international trade settlement
BRICS is intensifying efforts to reduce its reliance on the US dollar after plans for its stablecoin effort surfaced online on Tuesday. Most people expect the stablecoin to be backed by gold, considering BRICS nations have been accumulating large holdings of the commodity.
US versus the Eurozone: Inflation divergence causes monetary desynchronization
Historically there is a very close correlation between changes in US Treasury yields and German Bund yields. This is relevant at the current juncture, considering that the recent hawkish twist in the tone of the Fed might continue to push US long-term interest rates higher and put upward pressure on bond yields in the Eurozone.