A week on from its football World Cup victory, Germany may
return to the center stage, though this time not with fan celebrations but concerns over the health of Europe’s economic motor.
Investors saw dark clouds building on Friday after a Malaysia Airlines passenger flight was shot down on the Ukraine-Russia border and Israel launched a ground
offensive in Gaza. That depressed shares and other risk assets, but the events are yet to disturb economic forecasts. “We’ve seen a delayed impact of China and the Ukraine crisis,” said ING economist Carsten Brzeski. “This is an explosive cocktail, but right now with limited impact on growth. The Ukraine-Russia issue was
already there.” In a week relatively light on US indicators, economists are looking for further signs that Europe’s recovery and even German growth may be stalling, putting more pressure on European Central Bank to act.
Across the English Channel, minutes from the Bank of England may be the last to show unanimous backing for a stable bank rate of 0.5%. The case for tightening may then be reinforced by second quarter GDP estimates likely to show solid growth.
For Germany, the views of purchasing managers (PMIs) on Thursday should show whether a slowdown of Europe’s largest economy
detected in the second quarter has spread to the third.
Weakness in German industrial output and both domestic and foreign orders have pointed to a poor April-June period after 0.8% expansion in the first three months of the year, the fastest rate in three years. Last week’s ZEW index of analyst and investor morale for July, which dropped this month to its lowest level since December 2012, suggested that the third quarter had also started shakily. Forecasts for German manufacturing and services PMIs are broadly stable this month from last, with a third consecutive decline expected for Ifo’s business sentiment index, albeit only a slight dip following a sharper than expected fall in June.
“Latest data have been on the soft side and it has really raised people’s attention,” said Reinhard Cluse, chief European economist at UBS. “But we believe the German economy is still very solid and healthy and that this is a breather, not the first signs of a clear deceleration.”