Key Sentiment Data Ahead for Germany as Recession Looms

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Key business and consumer sentiment data is ahead for Germany as recession looms and inflation weighs on the economic outlook.

EUR currency crosses

EUR currency crosses could be affected by Ifo’s monthly Business Climate report for November, due out on Thursday. Previously at the level of 84.3, the consensus sees business confidence for November at the level of 85.

Europe’s largest economy is tipped to fall into recession in the fourth quarter, meaning this is a red-sided release. The Ifo institute predicted a contraction of 0.6 percent in Q4 for Germany, and its research shows that one in two companies expects to increase prices for goods and services over the next 3 months.

Inflation in Germany rose to 10.4 percent in October from 10 percent in September. If 50 percent of German companies still expect to raise their prices, it would likely push inflation up unless the European Central Bank (ECB) tightens monetary policy significantly. At the time of writing, ECB policy is still looser than that of the Federal Reserve, meaning the flow of money is into US assets with higher interest yields, challenging the EUR’s strength.

GfK Consumer Confidence

More information on Germany’s economic cycle is expected on Friday with the release of the GfK Consumer Climate Indicator. Previously at the level of minus 41.9 in November, the consensus is that the December result should be minus 39.6.

The negative consumer mood affected expectations about income and spending in Germany. The ECB meets on December 15 against a backdrop of weak consumer and business sentiment, but has little choice but to dampen inflation.

There are further risks to Germany’s growth due to China’s recent blockades and the ongoing war in Ukraine. In the latest developments, Germany’s trade authorities plan to diversify the country’s trading partners after Chancellor Olaf Scholz said the mistake of relying on one country would not happen again.

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