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Fall In German Confidence Readings

James Boston
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Fall In German Confidence Readings

The German IFO Institute and the Center for Economic Studies have just released the July CESIFO sentiment results. The headline IFO Business Climate number has come in at a level of 108.0, this is compared to a June reading of 109.7 and a consensus estimate of 109.4.

The IFO Current Assessment is also slightly lower at a reading of 112.9 for July, this compares to June’s report of 114.8 and a market consensus estimate of 114.5. The IFO Expectations number has just been reported as 103.4 this compares to 104.8 in June and a market expected level of 104.5.

On the consumer side the Gfk Consumer Confidence Survey for August was published earlier this morning, the reading is 9.0, for comparison the July number was 8.9 and markets did not expect any deviation from this figure.

As evidenced by the confidence and sentiment numbers this morning, Germany is bracing itself for any fall out from the economic sanctions that are almost certainly going to be imposed on Russia following it’s alleged connection to the shooting down of Malaysian Airlines flight MH17 last week. A full array of the sanctions are not likely to be immediately imposed until investigations have been concluded, this is likely to be closer to the end of September, however if and when this does occur it is likely that it will disproportionally impact on Germany due to it’s close economic links with Russia.

Estimates are difficult to obtain at this point but if sanctions go so far as to cripple the already frail Russian economy it could cost Germany up to 0.5% GDP growth. Further to this there is concern for up to 25,000 jobs at German companies with links to Russian firms. The mild European winter coupled with an expansion of storage capabilities will ensure German would not be immediately impacted by any interruption to it’s gas supply from Russia, this however has the potential to be problematic if the geopolitical situation persists.

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