German Ifo Business Confidence Forecast A Touch Lower With Growth Concerns On The Rise
European Central Bank plans for rate hikes are also a concern. (Photo: Culp)

- Headline index seen at 92.8 (prev 93.0)

- Current assessment set to ease

- Outlook projected to improve

- PMIs falter

- Ifo data due Friday at 08:00 GMT

 

 

By Eric Culp, European Editor

LiveSquawk News

@EricCulpLS

 

23 June 2022 | 08:40 GMT

 

FRANKFURT – Optimism among German managers is expected to fade this month amid blistering inflation, central bank rate hikes, a war, and the rising threat of recession in Europe’s largest economy and beyond.

 

A survey of economists predicted that the headline business climate index would ease to 92.8 points from 93.0 in May.

 

The index’s expectations component – a measure for the coming six months – was expected to increase to 87.5 from 86.9 in May. The current conditions component forecast is slightly lower at 99.0 versus 99.5 last month.

 

“We think the Ifo business climate index will have edged down a bit further in June and will continue to suggest that the economy is heading for a recession,” Capital Economics wrote. “The Ifo BCI increased again in May, but it was still at a level consistent with GDP contracting in year-on-year terms.”

 

It noted that ZEW and Sentix investor surveys for June suggest that sentiment remains very downbeat. “Although both indices rose in June, they are well below their long-run averages.

 

The analysis went on to explain that the boost that Germany’s services sector is getting from its post-Covid reopening spending is likely to fade soon, with households increasingly feeling the pinch from high inflation. Additionally, the manufacturing sector is currently being buoyed by backlogs of orders.

 

The latest purchasing managers’ indices released Thursday showed declines in both the manufacturing and services readings, which pulled the composite measure for this month down to 51.3 from 53.7 in May.

 

German business leaders are also facing the possibility of even higher electricity prices or energy supply issues due to the slowdown in the flow of Russian gas to Europe’s largest economies. Berlin raised the national alert level for natural gas supplies on Thursday.

 

Germany’s BDI industrial association recently warned that a stoppage of Russian gas supplies would inevitably drive the country’s economy into recession.

 

It’s the economy, stupid

Danske Bank said economic factors are likely weighing on the minds of business leaders responding to this month’s Ifo poll. “We look for a further decline due to the strong financial headwinds currently.”

 

The Swiss National Bank shook markets last week with a surprise 50-basis point interest rate hike. The move came after the European Central Bank uncharacteristically announced plans ahead of time for a 25bp increase in key rates next month.

 

High inflation and the danger of further increases have been cited as the reason for the moves. While the rate of Swiss consumer price growth remains under 3%, Eurozone inflation hit a record 8.1% in May, and German inflation was at a level last seen a half-century ago.

 

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