Carsten Brzeski, Chief Economist at ING, notes that Germany’s most prominent leading indicator just sent a strong sign of relief as after a long downward correction since the start of the year and a stabilisation during the early summer, the Ifo index staged an impressive comeback in August, increasing to 103.8, from 101.7 in July.
Key Quotes
“Probably not only the warm summer weather but rather (temporary) relief of trade tensions and sound economic fundamentals have lightened up German business sentiment.”
“In particular, the expectation component surged in August, to 101.2, from 98.2 in July. After last week’s positive and encouraging 2Q GDP data, today’s Ifo index strongly suggests that the growth party will continue.”
“Looking ahead, the German economy should continue a multiple balancing act. Balancing between strong fundamentals and increased geopolitical risks, between the favourable effects of the ECB’s loose monetary policy and the lack of new structural reforms, between solid domestic demand and trade tensions.”
“Up to now, talks and fears of new crises, trade wars or a sudden end to a mature cycle have only been talks and threats. They have not left any significant marks on the German economy (yet).”
“Obviously, this could change in the coming months. Even though the EU seems to be off US radar screens at least for the time being, the series of German export partners being hurt by sanctions, tariffs or economic crises is getting longer.”
“While risks from the external side are increasing, the domestic side of the German economy offers both challenges but also opportunities.”
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