Search ForexCrunch

Carsten Brzeski, Chief Economist at ING, notes that after the stabilisation in May, Germany’s most prominent sentiment indicator took another hit in June on the back of increased trade tensions and domestic political turbulence.

Key Quotes

“The Ifo index dropped to 101.8, from 102.3 in May. While the expectations component remained unchanged, the current assessment component dropped to 105.1, from 106.1 in May.”

“The jury on the real state of the German economy is still out. The combination of strong fundamentals, a stuttering start in the first months of the year and a series of soft indicators has clearly increased uncertainty.”

“Temporary soft patch, transition to a slower growth path or even the start of the end of the long and impressive growth performance, which started in 2009, are three possible scenarios for the German economy in the coming months.”

“In our view, the most likely scenario is still a rebound towards a slower growth path on the back of the strong labour market, low interest rates, low inflation and a weak euro. At the same time, however, the number of dark clouds in the German economic sky has clearly increased.”

“Currently, the most threatening factors are gradually escalating trade tensions, higher oil prices and, very recently, turbulences in domestic politics.”

“Domestic politics, however, currently are a bigger risk. The next two weeks could dramatically change the political landscape in Germany and in a worst case scenario even lead to a fall of the government and new elections.”

“Six drops and one stagnation in the last seven months or in other (soccer) words: six losses and one draw. This is clearly not a promising trend.”