German Ifo business climate index stabilizes in July

The German Ifo business climate stabilized in July. The index dropped just marginally in July to 101.7 from June’s 101.8, as compared with consensus expectations of a fall to 101.5. Business expectations dropped slightly to 98.2 from 98.5. The assessment of the situation rose slightly to 105.3 from 105.2.

The Ifo business climate appears to be stabilizing after the sharp fall in the first quarter; the composition purchasing managers’ index for industry and services has already increased considerably twice in a row. But this does not signify that German firms are following the trade dispute with the U.S. with ease.

Companies are familiar with the usual economic drivers. If, for instance, the euro appreciates against the currencies of the trading partners, firms know that this would dampen their profit margins which is a drag on the Ifo business expectations. If the appreciation eases, they relax again, which aids in explaining the recent stabilization of the Ifo business climate, noted Commerzbank in a research report.

However, the impending trade war is something new for German firms, they cannot assess its consequences, particularly since the USD has so far just imposed punitive tariffs on steel and aluminium. Thus, firms are waiting and not yet considerably lowering their business expectations.

However, the EU Commission’s main focus is on a retaliation strategy that affirms Trump’s and his voters’ perception of being treated unfairly by the EU. The EU has so far not offered to lower its tarrifs on imported cars from 10 percent to the mere 2.5 percent that the U.S. currently calculates. It is likely that Trump would end up imposing punitive duties on imported cars from the EU.

“This would have a severe impact on Germany as a car country, and the Ifo business climate would also fall significantly”, added Commerzbank.

At 17:00 GMT the FxWirePro's Hourly Strength Index of Euro was highly bearish at -104.867, while the FxWirePro's Hourly Strength Index of US Dollar was bearish at -79.6595. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex