German Ifo business climate falls sharply in July, GDP likely to grow only slightly in Q3

The German Ifo business climate dropped sharply to 95.7 in July from June’s 97.5. The economists’ consensus had expected only a fall to 97.2. The fall in the business climate was mainly linked to the expectations component, which dropped to 92.2.

Sector wise, the decline in the business climate in July was again concentrated on the export-oriented manufacturing sector. However, the business climate for the hitherto unusually crisis-resistant service sectors also deteriorated.

The Ifo business climate continues to decline. This downswing hint is affirmed by several other indicators. The purchasing managers’ index for the German manufacturing industry dropped considerably in July. The trend therefore points towards downwards again after the index stabilized between March and June. Incoming orders in the manufacturing sector dropped 2.2 percent.

All this gives rise to doubts regarding most economists’ forecast that the German economy will expand slightly more strongly again in the second half.

“We expect the German GDP to grow only slightly in the third quarter. For 2019 as a whole, we continue to expect only an increase of 0.4 percent. The German economy continues to be in a grey area between a marked growth slowdown and a recession”, said Commerzbank in a research report.

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