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ING analysts point out that after an almost free-fall since the summer of 2018 and 13 drops in 16 months, Germany’s leading indicator stabilised in October and remained at 94.6.

Key Quotes

“While the current assessment component dropped to 97.8 from 98.5, the expectations component halted its recent fall and increased to 91.5 from 90.8. The latter signals that the freefall of the economy could have come to a (temporary) halt.”

“Despite today’s Ifo news, the German economy remains caught in the toxic mix of external uncertainties, the global manufacturing slowdown and homemade structural weaknesses. In fact, even though the jury is still out, it looks increasingly hard for the German economy to avoid a technical recession; that would require a strong rebound in economic activity in September.”

“Looking ahead, high inventories and thin order books do not bode well for the manufacturing sector in the months ahead. While a likely Brexit extension and positive headlines from trade could bring some short term relief, the experience of recent years suggests we need to be extremely cautious. Some relief can easily be followed by new disappointments. Or to stick to a horror narrative: the monster very often returns before disappearing for good.”

“Relief, unfortunately, is not the same as a rebound. However, after endless disappointing macro data out of Germany, today’s Ifo reading gives hope that at least a bottoming out could be in sight. Still, the risk of a long flirt with stagnation remains high and with it the risk of a Japanification of the German economy. A bittersweet victory against a real recession, as such a stagnation would give the comfort of avoiding a severe crisis, while at the same time reducing the urgency to add.”