Not that anyone needed additional confirmation, but an update on the key leading indicator for the world’s fourth-largest economy showed Germany is mired in an interminable malaise, as I put it earlier this week.
Ifo printed 85.7 for August, down from July and the worst since October. The current conditions gauge dropped to a three-year low.
The outlook isn’t much better. “Companies are increasingly pessimistic about the months ahead,” the color accompanying Friday’s release said. “The German economy is not out of the woods yet.”
The grim figures underscored the message from PMIs out earlier this week. The flash read on S&P Global’s services gauge for Germany in August was just 47.3, a nine-month low and a remarkable drop from the prior month’s expansionary print.
Ifo flagged a “notable” cooling in the German services economy, where businesses “were clearly less satisfied with their current situation” and generally expect things to get worse. Needless to say, Germany’s factories are beset with worry. Ifo described expectations in manufacturing as “starkly pessimistic.”
Separately (but relatedly), the German statistics office confirmed that the economy stalled in the second quarter.
The quote in the chart header is from ING’s analysis of the preliminary GDP figures released late last month. It still applies.
Ruth Brand, President of the Federal Statistical Office, offered a glass half-full assessment. “After slight declines in the previous two quarters, the German economy stabilized in the spring,” she said Friday. The biggest drag in Q2 was exports, which contracted 1.1%, indicative of subdued external demand.
“The ongoing weakness in the Chinese economy, ongoing monetary policy tightening and policy uncertainty regarding the energy transition and energy prices seem to be weighing on German company sentiment,” ING’s Carsten Brzeski remarked, adding that “today’s data pours more cold water on [the idea] that the country’s economic weakness will be short-lived.”
It’s probably fair to suggest that “stabilization” (Brand’s euphemism for stagnation) is as good as it gets for Germany in the near-term.
