"The climate in the German economy continues to cool down."
the high spirits on the German executive floors are evaporating, writes the Munich-based ifo Institute. The economic researchers report the fifth consecutive decline in business expectations. The ifo traffic light also consistently shows a deep "red" (chart below).
As the assessment of the current business situation remains at a very high level, expectations and the situation now diverge extremely widely. In the future, either the situation will deteriorate significantly - or expectations will have to recover quickly.
In this situation, optimists point to the calculation method of the expectation index. Companies are asked to mark their business expectations for the coming months as "more favourable", "stable" or "less favourable". The balance value is the difference between the percentage shares of the answers "more favourable" and "less favourable".
If now - as in the past - very high values are reached, obviously an extremely high percentage of the respondents expected a more favourable environment. If their business then actually improves and they report in the next survey that they expect consistently excellent but not even better business, the expectation index declines. This movement must therefore occur at some point after a strong upswing. However, it is worrying that the balance between "more favourable" and "less favourable" has now reached very close to zero;
The crucial question is: Is this just a dip in growth or the beginning of a downturn that, in the worst case, will lead to a recession?
The vast majority of economists believe in a temporary weakness and point to special German effects such as a high level of illness and strike-related absences in recent weeks. Arguing with the robust global economy, the acceleration of economic momentum in the emerging markets and expansive impulses from fiscal policy in Europe and above all in the USA (Trumps tax reform). And assumes that ifo business expectations will quickly improve again as soon as it becomes apparent that economic reason wins out in the trade conflict.
I'm sure that's all right. But who knows: In view of the uncertain situation, entrepreneurs may also postpone investment projects in the future and the German economy will then weaken considerably. One member of our network commented dryly: "Every downturn necessarily begins with a dent in growth.
In view of the steady and massive decline in business expectations since the end of February, the private-wealth stock market indicator proposes only a share quota of between zero and 30 percent of the share quota that each investor considers individually appropriate for the long term. This means that we are - so to speak - out of the market. In view of the further deterioration of the Ifo data, there is no reason to change this cautious attitude.
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