German Ifo dropping for a second month

The German Ifo Business Climate for August has dropped for a second consecutive month as the Q2 recovery seems to be petering out. The data also came in lower than expected due to a sharp decline in the Expectations component.

Here are the key components in the data:

  • Ifo Business Climate 99.4 (100.4 exp, 100.7 in July)
  • Ifo Current Conditions 101.4 (100.8 exp, 100.4 in July)
  • Ifo Expectations 97.5 (100.0 exp, 101.0 in July)

German Ifo

In another concerning aspect of the data, the Expectations component has fallen below the Current Conditions for the first time in over a year. Businesses are more pessimistic about future prospects than they are currently. The data also reflects a rolling over in the German flash Manufacturing PMI on Monday.

The spread of the highly virulent delta variant of COVID has been a concern for businesses, but devastating floods across northern Europe are also taking their toll. Supply chain issues are also expected to continue to negatively impact business in Germany.


Initial Market Reaction

The data is a little concerning for German business and has weighed slightly on the German DAX index. Perhaps counter-intuitively, Bund yields have risen (by around +2 basis points) since the announcement.

  • EUR has marginally strengthened against USD by c. +20 pips
  • However, this also coincides with GBP strengthening meaning that EUR/GBP is broadly flat. This could mean it is a broad USD negative shift that has pulled EUR/USD higher.