On Monday, German managers’ outlook is expected to weaken in line with recent Sentix and ZEW prints. Especially as businesses have had to contend with slow growth and rising borrowing costs.
Economists said the headline business climate index for Germany due Monday from the country’s Ifo economics institute is expected to slip to 90.7 points from 91.7 last month.
The expectations component of the index, a measure of the coming six months, is forecast to have weakened slightly to 88.0. This month’s current assessment component is expected to fall to 93.5 from 94.8.
Last month saw both components used to calculate the main reading weaken, with the expectations measure for the coming half year – the main support for the headline rate in recent months – falling for the first time since October.
Poor leading indicators
Survey data leading up to Ifo’s release reflected a deteriorating picture for the eurozone’s largest economy. Flash June purchasing managers’ indices (PMIs) for Germany released last week dropped 50.8, a fall of 3.1pts, its lowest read since February.
Germany’s June ZEW survey expectations components bounced a little, however, overall, it remained stuck in negative territory. Analysts cautioned that the largest drop in business conditions since April 2020 is a warning sign that the economic weakness seen over the winter won't end quickly.
HSBC’s Stefan Schilbe said, “The most worrying signal is the rapid deterioration of current conditions to the lowest level since January when Germany was in the midst of a recession.”
Fading sentiment
“The reasons for the sharp deterioration in many manufacturing sentiment indicators recently remains somewhat unclear, with the March financial market turmoil, a slowdown in China, tighter lending conditions and weaker US data all potential culprits,” SocGen’s Michel Martinez posited. “While we believe the market turmoil did have an impact, there are also signs that global manufacturing demand and trade are slowing down.”
Thursday’s ECB rate announcement produced a further interest rate rise, as well as a promise from policymakers of more to follow. “Barring a material change to our baseline, it is very likely that we will continue to raise rates in July,” Christine Lagarde said at the press conference following the rate decision.
Schilbe forecast another decline of the business climate index in June, noting that with both the assessment of current business conditions (down from 94.8pts to 93.9pts) and business expectations (87.3pts from 88.6pts) set to drop at the end of Q2, this should drag down the headline index from 91.6pts to 90.5pts – the lowest reading since January 2023.
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- Latest survey data points to softening
- Falling business expectations to weigh
- Tight lending conditions, weaker growth blamed
By Harry Daniels
LiveSquawk News
@HarryDaniels71
25 June 2023 | 18:00 GMT
On Monday, German managers’ outlook is expected to weaken in line with recent Sentix and ZEW prints. Especially as businesses have had to contend with slow growth and rising borrowing costs.
Economists said the headline business climate index for Germany due Monday from the country’s Ifo economics institute is expected to slip to 90.7 points from 91.7 last month.
The expectations component of the index, a measure of the coming six months, is forecast to have weakened slightly to 88.0. This month’s current assessment component is expected to fall to 93.5 from 94.8.
Last month saw both components used to calculate the main reading weaken, with the expectations measure for the coming half year – the main support for the headline rate in recent months – falling for the first time since October.
Survey data leading up to Ifo’s release reflected a deteriorating picture for the eurozone’s largest economy. Flash June purchasing managers’ indices (PMIs) for Germany released last week dropped 50.8, a fall of 3.1pts, its lowest read since February.
Germany’s June ZEW survey expectations components bounced a little, however, overall, it remained stuck in negative territory. Analysts cautioned that the largest drop in business conditions since April 2020 is a warning sign that the economic weakness seen over the winter won't end quickly.
HSBC’s Stefan Schilbe said, “The most worrying signal is the rapid deterioration of current conditions to the lowest level since January when Germany was in the midst of a recession.”
“The reasons for the sharp deterioration in many manufacturing sentiment indicators recently remains somewhat unclear, with the March financial market turmoil, a slowdown in China, tighter lending conditions and weaker US data all potential culprits,” SocGen’s Michel Martinez posited. “While we believe the market turmoil did have an impact, there are also signs that global manufacturing demand and trade are slowing down.”
Thursday’s ECB rate announcement produced a further interest rate rise, as well as a promise from policymakers of more to follow. “Barring a material change to our baseline, it is very likely that we will continue to raise rates in July,” Christine Lagarde said at the press conference following the rate decision.
Schilbe forecast another decline of the business climate index in June, noting that with both the assessment of current business conditions (down from 94.8pts to 93.9pts) and business expectations (87.3pts from 88.6pts) set to drop at the end of Q2, this should drag down the headline index from 91.6pts to 90.5pts – the lowest reading since January 2023.