FRANKFURT –– German managers expressed less optimism about their prospects despite an interest rate cut from the European Central at the beginning of the month, adding more evidence to the argument that Europe’s largest economy is not out of the woods yet.
Germany’s Ifo economics institute said Monday that the results of this month’s survey of local business officials showed the headline reading dropping to 88.6 points from 89.3 in May and April, which fell well short of the market estimate of 89.6.
The expectations component of the index – a measure for the coming six months – slid to 89.0 points versus the economists’ estimate of 90.7 and a downwardly revised mark of 90.3 in May.
The current conditions component held at 88.3 points, which compared to a market forecast of 88.5.
The yield on the German 10-year government bond slipped on the news before rebounding to pre-release levels.
Germany's financial capital was decked out to host Euro 2024 matches (Photo: Culp)
Factory bookings attract focus
“The German economy is having difficulty overcoming stagnation,” Ifo wrote, noting that its business climate index for the manufacturing sector declined after three straight increases. In this segment, “companies were again more sceptical for the months ahead. They were particularly concerned by the declining order backlog, but were somewhat more satisfied with current business.”
Unease about manufacturing was also apparent in preliminary purchasing managers’ indices for Germany released last week. The overall composite index dropped to 50.6 points from 52.4 last month, leaving it barely in growth territory above the 50-point mark. That result came courtesy of the services component, which slipped to 53.5 from 54.2 in May. The manufacturing component dropped to 43.4 from 45.4 and further into the contraction territory.
Optimism about the future among German financial market experts fell short of expectations this month, according to the ZEW polling results, but the outlook was still at its highest level since February 2022.
And the worsening mood among German managers responding to the Ifo survey came despite the ECB’s 25-basis point rate cuts at the start of the month and a similar move by the central bank in neighbouring Switzerland last week, its second quarter-point reduction this year.
Economy choppy like Die Mannschaft
“The latest batch of German confidence indicators still points to a very anaemic recovery of the German economy after the cyclical bottoming out at the start of the year,” ING’s Carsten Brzeski wrote.
“To some extent, since the start of the year, the German economy has gone through similar phases as the German national football team at the European Championships: too much enthusiasm about a good start to the tournament only because the years before had been miserable; a painful reality check in the first 89 minutes in the match last night against Switzerland; followed by a blast of euphoria after scoring in the very last minute. Euphoria after a draw, not after a win – it’s a new reality, both in German football and for its economy.”
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- Headline reading, components fall
- Drop follows poor results from investor poll
- PMIs surrender gains
- Lower borrowing costs add little support
By Eric Culp, European Editor
LiveSquawk News
@EricCulpLS
24 June 2024 | 09:00 GMT
FRANKFURT –– German managers expressed less optimism about their prospects despite an interest rate cut from the European Central at the beginning of the month, adding more evidence to the argument that Europe’s largest economy is not out of the woods yet.
Germany’s Ifo economics institute said Monday that the results of this month’s survey of local business officials showed the headline reading dropping to 88.6 points from 89.3 in May and April, which fell well short of the market estimate of 89.6.
The expectations component of the index – a measure for the coming six months – slid to 89.0 points versus the economists’ estimate of 90.7 and a downwardly revised mark of 90.3 in May.
The current conditions component held at 88.3 points, which compared to a market forecast of 88.5.
The yield on the German 10-year government bond slipped on the news before rebounding to pre-release levels.
Factory bookings attract focus
“The German economy is having difficulty overcoming stagnation,” Ifo wrote, noting that its business climate index for the manufacturing sector declined after three straight increases. In this segment, “companies were again more sceptical for the months ahead. They were particularly concerned by the declining order backlog, but were somewhat more satisfied with current business.”
Unease about manufacturing was also apparent in preliminary purchasing managers’ indices for Germany released last week. The overall composite index dropped to 50.6 points from 52.4 last month, leaving it barely in growth territory above the 50-point mark. That result came courtesy of the services component, which slipped to 53.5 from 54.2 in May. The manufacturing component dropped to 43.4 from 45.4 and further into the contraction territory.
Optimism about the future among German financial market experts fell short of expectations this month, according to the ZEW polling results, but the outlook was still at its highest level since February 2022.
And the worsening mood among German managers responding to the Ifo survey came despite the ECB’s 25-basis point rate cuts at the start of the month and a similar move by the central bank in neighbouring Switzerland last week, its second quarter-point reduction this year.
Economy choppy like Die Mannschaft
“The latest batch of German confidence indicators still points to a very anaemic recovery of the German economy after the cyclical bottoming out at the start of the year,” ING’s Carsten Brzeski wrote.
“To some extent, since the start of the year, the German economy has gone through similar phases as the German national football team at the European Championships: too much enthusiasm about a good start to the tournament only because the years before had been miserable; a painful reality check in the first 89 minutes in the match last night against Switzerland; followed by a blast of euphoria after scoring in the very last minute. Euphoria after a draw, not after a win – it’s a new reality, both in German football and for its economy.”
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