After the disappointing PMI’s yesterday, also the German IFO business climate indicator surprised on the downside of expectations in July, reaching the lowest level since March 2010.
The headline business climate indicator fell from a downwardly revised 105.2 to 103.3, while a more limited decline to 104.5 was forecast. The details show that both the current situation (111.6 from 113.9) sub-index and the expectations (95.6 from 97.2) suffered more than forecast in July. Sector details show that confidence weakened the most in the manufacturing sector (-1.9 from 4.8), but deteriorated also in construction (-6.7 from -4.7) and in wholesale trade (3.9 from 5.0).
Confidence in the retail sector, on the contrary, improved, picking up from 0.3 to 5.1. An IFO economist added that private consumption has not yet been hit by the crisis.
The IFO institute expects that the German economy continued to growth in the second quarter, although only marginally, by 0.1% Q/Q and the same pace of growth is forecast for the third quarter. We are somewhat more pessimistic and believe that the German economy will be unable to avoid at least one more quarter of negative growth.