The unexpectedly significant decline in the Ifo business climate (87.0 after 88.6) is another cold shower for economic optimists. The easing pain from past rate and energy price hikes has not yet helped the economy, partly because companies are suffering from the long-standing erosion of Germany as a business location. For the second half of the year, we see an anemic upswing at best. Many economic forecasts are still too optimistic, Commerzbank Chief Economist Dr. Jörg Krämer notes.
Ifo means downturn
“The Ifo Business Climate index for the German economy fell significantly again in July – from 88.6 to 87.0. This was significantly below expectations (consensus & Commerzbank: 89.0). The fall was mainly due to declining business expectations for the next six months (86.9 after 88.8). However, the assessment of the current business situation has also deteriorated noticeably (87.1 after 88.3).”
“This is the third consecutive decline in the Ifo business climate and thus fulfills the definition of a downturn used by many economic forecasters. However, it should be borne in mind that the decline in May was minimal. In addition, the 6-month average, which according to our estimates is a reliable reversal indicator, is still pointing slightly upwards. The Ifo business climate is not yet signaling a downturn.”
“Nevertheless, the renewed decline in the Ifo business climate is a cold shower – especially as the purchasing managers' index for the manufacturing and service sectors also fell significantly in July. Added to this is the sharp fall in new orders in May. The recent weak economic indicators put a big question mark behind the expectation of a noticeable economic upturn for the second half of the year.”
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