MNI 5 THINGS: Jul GER Ifo To Support Signs of a Slowdown

--German Jul Ifo Data Due for Release Wed

By Jai Lakhani

     LONDON (MNI) - The German Ifo Business Climate index slipped to a 15-month

low in June, falling to 101.8 from 102.3 in May. Data due for release on

Wednesday will show whether sentiment regarding current business conditions, as

well as expectations for the next six months, have managed to start the second

half of the year on a firmer footing, following gradual declines in both

components over H1.

     Ahead of the release, we outline five themes that we feel warrant

particular attention.

     - Tendency to Underestimate July Ifo: Over the last 13 years, analysts have

underestimated the July Ifo headline index on nine occasions. When comparing

analyst forecasts for the July reading over the past 13 years to the actual

results, we find that the Bloomberg consensus number has undershot the data by

an average of 2.87 points over this period. Although analysts have overestimated

the July result on four occasions during the period, with an average overshoot

of 1.72 points, these instances have all occurred in the past seven years

(including last year).

     - Manufacturing and Trade are the Culprits for Falling Business

Expectations: The business expectations component has been on a declining trend

since November 2017, following strong growth in the two-year period prior to

this. This decline has been driven by sharp falls in the manufacturing and trade

business expectations. Furthermore, the November 2017 reading of 17.4 was last

higher in December 2010 and the June 2018 reading of 6.7 was last lower in March

2016, thereby illustrating the dramatic fall.

     - Indicators Point to Moderation: Many key indicators have painted a

picture of a slowing German economy since the turn of the year. However, given

strong growth in 2017, it should be of no surprise to see a cool down. This is

especially the case given the current backdrop of geopolitical trade tensions

and tariffs.

     - Ifo Business Climate Likely to Mirror PMI Data: The flash estimate of

Germany's July Composite PMI index pointed to the strongest growth in private

sector activity since February, with a reading of 55.2. A welcome boost in

manufacturing drove the overall performance, with the Manufacturing PMI

registering at 57.3 -- the strongest in three months. With services also

remaining robust with a reading of 54.4, the Ifo business climate indicator is,

to at least some extent, likely to mirror this strength.

     - Business Uncertainty Ticked Up in June: Snapping a run of five

consecutive falls, the Ifo Dispersion Index, a measure of German business

uncertainty, ticked up in June from May's record low. On the whole, German

business sentiment seems to be reacting resiliently to sources of both domestic

and global tension, highlighted by the general downward trend in the index since

2009. However, recent trade developments may have seen anxiety levels among

German businesses spike further. While June saw the confirmation of US tariffs

imposed on the EU, followed by reciprocal action on a host of US-made goods,

July saw threats to slap a 20% import tariff on all European-produced autos and

auto parts.

--MNI London Bureau; +44 203 865 3828; email: jai.lakhani@marketnews.com

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