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The IFO business climate: Germany is facing the storm

Germany’s business climate index for the month of August was released by the IFO on Tuesday . The report has immediately triggered heated debate. The reason is that the index turned out to be surprisingly strong showing growth from 108.0 to 108.3 instead of the expected decline. Rumors began circulating that the August trend should not be taken into account, since the majority of respondents for this report were interviewed in the first half of the month, before the collapse in the global stock markets.

In my opinion, on the contrary, it is remarkable that the IFO Institute managed to capture the mood among German business before the panic provoked by concerns about China. This allows us to evaluate the response of Germany’s business circles to the third bailout agreement for Greece.

On June 29, I wrote that the IFO’s reversal down after it had reached local high at 108.6 in April might be caused by concerns over a possible Greek default. If the Greek crisis was resolved, I assumed, that the index would continue to grow and in the future would not only exceed the April level, but reach its 2014 high at 111.3.

Indeed, we see that after the resolution (at least temporarily) of the situation with Greece, the IFO index did resume its growth. However, there’s nothing to be joyful about. And here’s why. In terms of chart analysis, since 2011, the index moved within a converging triangle (see the Chart). There’s not so much space left within the narrowing boundaries, and future prospects of the index (and Germany’s economy, respectively) depend on which direction the exit occurs – down or up.

germany-business-confidence27-8-15

 

If not for the recent developments in stock markets, we could almost certainly expect the IFO index to break above the triangle’s upper border in the near future. But now there is no such certainty. In September, the index will probably drop, and significantly. Will it be able to regain its strength and continue growth?..

Releasing the August report, the IFO experts compared German economy with a cliff in the rock in the middle of a stormy sea. Will this rock withstand the intensifying onslaught of waves?..

 

Dear traders, please post your comments to our forecasts and share your own opinion. Your ideas can be very helpful for the newcomers. Thank you!

Germany’s business climate index for the month of August was released by the IFO on Tuesday . The report has immediately triggered heated debate. The reason is that the index turned out to be surprisingly strong showing growth from 108.0 to 108.3 instead of the expected decline. Rumors began circulating that the August trend should not be taken into account, since the majority of respondents for this report were interviewed in the first half of the month, before the collapse in the global stock markets.

In my opinion, on the contrary, it is remarkable that the IFO Institute managed to capture the mood among German business before the panic provoked by concerns about China. This allows us to evaluate the response of Germany’s business circles to the third bailout agreement for Greece.

On June 29, I wrote that the IFO’s reversal down after it had reached local high at 108.6 in April might be caused by concerns over a possible Greek default. If the Greek crisis was resolved, I assumed, that the index would continue to grow and in the future would not only exceed the April level, but reach its 2014 high at 111.3.

Indeed, we see that after the resolution (at least temporarily) of the situation with Greece, the IFO index did resume its growth. However, there’s nothing to be joyful about. And here’s why. In terms of chart analysis, since 2011, the index moved within a converging triangle (see the Chart). There’s not so much space left within the narrowing boundaries, and future prospects of the index (and Germany’s economy, respectively) depend on which direction the exit occurs – down or up.

germany-business-confidence27-8-15

 

If not for the recent developments in stock markets, we could almost certainly expect the IFO index to break above the triangle’s upper border in the near future. But now there is no such certainty. In September, the index will probably drop, and significantly. Will it be able to regain its strength and continue growth?..

Releasing the August report, the IFO experts compared German economy with a cliff in the rock in the middle of a stormy sea. Will this rock withstand the intensifying onslaught of waves?..

 

Dear traders, please post your comments to our forecasts and share your own opinion. Your ideas can be very helpful for the newcomers. Thank you!



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