Confidence among German businesses deteriorated further in August, Ifo’s business climate index shows.
The closely-watched gauge fell to 94.3 this month, a near seven-year low.
It was the fifth straight monthly decline.
The expectations index fell too, hitting 91.3, which is remarkable considering July’s 92.2 print was already the weakest since 2009.
“Worries among German business leaders are getting deeper and deeper”, the survey said. “The signs of a recession in Germany are thickening”.
Yes, “thickening”. Earlier this month, we learned the German economy contracted for a second quarter in four, and although speculation is high that Berlin will ultimately be forced to abandon the “black zero” fiscal policy in favor of stimulus, skeptics abound when it comes to the idea that Germany will loosen the purse strings.
Read more: German Stimulus Rumor Mill Kicks Into High Gear With Recession ‘Contingency Plan’ Report
“Although weaker-than-expected growth momentum and recent comments by economic and political actors increase the chances of a somewhat looser fiscal policy, we see three main hurdles to a significant change in Germany’s fiscal stance in the short run”, Goldman wrote earlier this month.
Those hurdles, according to the bank, are “a widely shared public concern over the impact of demographic change and the associated spending on social security on future levels of public debt; the majority of politicians in Germany are reluctant to support further fiscal easing with the exception of the Greens and the far-left party; within the current ‘Grand Coalition’ government, the Bavarian sister party (CSU) of Chancellor Merkel’s party is opposed to changing the ‘black zero’ rule”.
(Goldman)
That’s all undoubtedly true, but don’t expect the cat calls from the Greens (and from the rest of the world) to die down. Indeed, with Germany now borrowing for free, the rationale for not spending to avert a downturn is somewhat tenuous.
What could break the logjam? Well, presumably an outright economic calamity, which is seen as an increasingly likely scenario, depending on your definition of “calamity”.
“The situation is becoming dire”, Ifo president Clemens Fuest told Bloomberg TV. “The weakness which was focused on manufacturing is now spreading to other sectors”.
For Goldman, “an additional meaningful fiscal stimulus… would require a catalyst, such as an outright recession and/or a severe adverse economic shock such as a ‘no deal’ Brexit or US tariffs on European cars”.
As for a no-deal Brexit, that looks like a foregone conclusion. On the auto tariffs, you’ll have to ask “Tariff Man”, who struck a somewhat conciliatory tone on Monday, but is inclined to change his mind depending on the hour.
