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.”

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