Broad-Based IFO Weakness Reinforces Narrative of Recovery Stall

Germany's IFO Business Climate Index fell in July for the third consecutive time to 87.0, weaker than both expectations of 89.0 and June's 88.6. This is the lowest overall print since February, and mirrors the July flash PMIs, which also saw a decline in sentiment across sectors. The data reinforces the narrative of a stall of the gradual recovery in Germany, and the weaker business expectations in particular also lower expectations of that recovery going forward.

• Both main subindices fell: current assessment came in at 87.1 (vs 88.5 cons; 88.3 prior), and expectations underperformed even more, at 86.9 (vs 89.3 cons; 89.0 prior).
• The weakness was also broad-based across sectors: Diffusion balances fell everywhere. The decline in manufacturing to -14.1 (-9.3 June, back to Feb levels) was centered around businesses' current assessment (-13.9 vs -6.2 June, lowest since the pandemic), while services firms predominantly had worse expectations in July than before - keeping the overall services balance only barely in positive territory at +0.7 (vs +4.2 June, back to March levels; services expectations -11.1 July vs -5.2 June).
• In the trade sector, both the current assessment and expectations were weaker, the overall balance stands at -27.8 (-23.6 June). Construction, which saw the the lightest overall decline (but from already very low levels) to -26.0 (-25.2 June), the current assessment was worse (-18.7 vs -17.1), while expectations remained largely unchanged.
• The less volatile 3MMA measures mirror the underwhelming print: they fell for all sectors except construction, and clearly show that the uptrend towards the beginning of this year did not continue recently.

MNI, IFO