EUROPEAN DATA WRAP: Another dismal German release brings the ECB nearer to an inflection point

Analysis details (12:30)

German Ifo, July

• Overall, the release adds to the headwinds outlined by HCOB’s Flash PMIs for the German economy, which alongside the signs of tighter financial conditions outlined by the ECB BLS survey (released at the same time) could temper calls for further tightening post-July.


• German Ifo Business Climate New (Jul) 87.3 vs. Exp. 88.0 (Prev. 88.5); Current 91.3 vs. Exp. 93.0 (Prev. 93.7); Expectations 83.5 vs. Exp. 83.0 (Prev. 83.6)


• Within the release, Ifo highlights that German GDP is likely to shrink in Q3, an observation that follows Ifo announcing in its June report that the likelihood of the economy shrinking in Q2 increased. Reminder, the German economy entered a recession in Q1 when the final release of that data was subject to marked downward revisions. Therefore, if Ifo is correct, then contractions in Q2 and Q3 would spell 12-months of downturn for the EZ’s largest economy; a finding which will undoubtably be of marked concern for policymakers on both the fiscal and monetary side. Particularly as they chime with the Flash PMIs, which noted that the GDP nowcast for Q3 has moved into negative territory.


• Concerningly, Ifo noted that expectations within industry have managed to deteriorate further from already stressed levels with their economists not expecting any improvement on this front.


• For the ECB, the findings will have little sway on the entirely priced 25bp hike for July 27th, but will be a point of concern when determining if more tightening is warranted at the September meeting and beyond. Particularly, if the new economic projections prepared for the GC ahead of the September gathering and announced alongside are reflective of the growing pressures within Germany and other EZ nations. Overall, the release adds conviction to calls that the ECB is nearing the conclusion of its tightening cycle.

25 Jul 2023 - 12:30- Fixed IncomeData- Source: Newsquawk