Germany

ifo survey: Downturn in German economy still not finding a foothold

The German economy is coming under increasing pressure, and the situation is becoming increasingly uncomfortable, especially in industry. Brexit, the trade dispute and generally uncertain prospects are placing an increasing burden on German industrial companies. And the domestic economy is also suffering. The previously very stable service sector is now also feeling the effects of the economic slowdown. Only the construction sector, largely unaffected by the difficulties of other sectors of the economy, can enjoy the sustained boom. The ifo Business Climate Index fell from 97.5 to 95.7 points in July. The companies were less satisfied with their current business situation, and they are even more sceptical about their future business development. Business expectations for the coming three months in the current month have even fallen to their lowest level for more than ten years. However, there are still no signs of a crisis in Germany, even though growth has…

Industry pulls private sector down in the euro zone

According to the IHS Markit survey, the mood among European purchasing managers deteriorated further in July. While the industrial index fell to its lowest level for more than six years (46.4 points), the mood among service providers remained comfortable despite a slight decline (53.3 points). The comprehensive composite index thus stands at 51.5 points after 52.2 points in the previous month. The pronounced weakness in the industry is primarily attributable to the poor mood in Germany. In view of this, an economic recovery cannot be expected at the beginning of the third quarter on the basis of the survey results. In Germany, the dichotomy in sentiment between industry and service providers remains, as the index for industry fell to its lowest level since July 2012 at 43.1 points. The sentiment barometer for the service sector also declined, but at 55.4 points it remains comfortable in the expansion area. The industry…

Deutschland: Konjunktureintrübung schlägt sich zunehmend im Kreditgeschäft nieder

The economic downturn, which is affecting export-oriented German industry in particular, is increasingly affecting the business of banks in Germany. According to the ECB’s July Bank Lending Survey, for the second consecutive year the banks surveyed reported tightening up their corporate credit policies. More loan applications were rejected and the margins for riskier loans increased. Large companies were more affected. This is due to a deterioration in the situation of various companies and sectors, resulting in a decline in creditworthiness. The survey results support our assessment that the extremely dynamic growth of the credit markets in Germany will slow noticeably this year. Most recently, corporate customer loan portfolios rose by 6.1 per cent (end of Q1/2019) and private housing loans by 4.9 per cent. No further tightening of credit guidelines is planned in the corporate customer lending business for the next three months. However, the majority of banks expect demand…

Order receipts in manufacturing give cause for concern

German manufacturing sector companies are booking an ever lower number of orders. In May, order receipts dropped 2.2% on April after adjusting for price, calendar and seasonal effects. Compared to May 2018, the decline was as much as 8.6%. The current decrease is attributable to weaker demand from abroad. Domestic orders have, by contrast, tended somewhat more favourably of late. The weak order receipts are another consequence of the cooling global economy and the effects of the trade dispute between China and the USA. In the longer term, this is shown by both a drop in demand from countries outside the Eurozone and the clearly lesser interest amongst its European neighbours in Germany’s industrial products. Particularly hard hit in this context are the industrial corporations that rely on exports. In the course of the year to date, order receipts in manufacturing have dwindled by over 5% on the same period…

Why do company profits and share prices collapse so heavily in a recession?

A definition by the University of Oxford suggests that a cycle is “a series of events that are regularly repeated in the same order.” In the natural sciences, cycles follow certain patterns. The point in time, amplitude and degree of fluctuation repeat themselves. Economies, companies, markets and investor behaviour do not exhibit these fixed regularities. The movements are more complex and not predictable. They interlock, meaning that alongside the economic cycle there is the corporate profits cycle, the property market cycle, the general attitude toward risk amongst market players and other aspects, too. Together they provide the fundamental and the sentiment-driven framework data for investments in the capital market. During recessions falling corporate profits are considered to be the reason for the weakness of the economy and share prices. That said, why in a recession do the profits of publicly listed companies fall disproportionately sharply if macroeconomic growth only deviates…

Euroland inflation rate hardly moves – many expectations weighing on the ECB

In June, the Euroland inflation rate did not budge from the spot. As a result, the annual inflation rate for consumer prices was identical to the 1.2% seen the prior month. Two countervailing factors impacted on the Harmonised Index of Consumer Prices (HICP): On the one hand, energy prices exerted less pressure on prices, which served to lower the inflation rate. On the other, following the ups and downs of past months owing to the late date of Easter this year, service sector prices rose somewhat more strongly again and were back at their usual level. In country terms, the dynamism of price trends in those economies that had already published initial estimates for inflation was uneven. In Germany, the HICP remained unchanged at 1.3%, and in France it rose from 1.1 to 1.4%. In Spain, by contrast, inflation slipped from 0.9 to 0.6%. The Italian inflation rate dipped from…

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