IFO Confirms Recessionary Conditions In Place In Q3

September's German IFO survey confirmed weak economic conditions to round out a likely contractionary Q3, despite coming in above expectations.

• The overall Business Climate reading of 85.7 was a tick lower vs August's upwardly revised 85.8 but was above the expected 85.2. The current assessment slipped to 88.7 from 89.0 (but above the 88.0 expected). Expectations ticked higher to 82.9 from an upwardly revised 82.7, though a touch below the 83.0 expected.
• This was the 5th consecutive decline in the Business Climate reading. On a sector-by-sector basis, the Construction sector's -31.3 outturn was the weakest since 2005, while manufacturing was negative for the 5th consecutive month, services for the 2nd, with trade remaining moribund at -25.0.
• While not quite as bad as some had expected, the headline readings confirmed the weakness we have been seeing across the economy in recent months, from factory orders to retail sales to PMIs.
• Regarding the latter which were out last week, they were on the margin more optimistic than IFO equivalents, but still contractionary.
• With multiple cyclical and structural headwinds hitting the German economy at once, there is little in this report to dissuade expectations of German GDP printing flat-to-negative Q/Q in Q3 (consensus is -0.1%), with Y/Y GDP at -0.6%. That would follow on from 0.0% Q/Q in Q2 and negative readings in 3 of the prior 4 quarters.

Source: S&P Global, IFO, MNI