German Ifo indicates descent is starting

The Ifo business climate for trade and industry fell more steeply in June than the average of economists had been expecting (to 107.4, down from 108.5). Unlike in the previous month, not only business expectations for the next six months have fallen this time (for the third consecutive time, incidentally). The assessment of the current situation has also turned out lower. This suggests that the headline figure of the business climate index is starting to turn downwards. 

As the chart below shows, demand growth from emerging markets (adjusted for price changes) has weakened considerably since the turn of the year. This is probably partially due to slowing growth in China, which is suffering from falling house prices and high corporate debt levels. This seems to be the main reason for the current signs that the Ifo business climate is turning downwards. A similar development was observed in 2014. 

All this is certainly a burden on the German manufacturing sector. "But the downside risks to our growth forecast for the overall economy (GDP 2015: 1.8%) are nevertheless limited", says Commerzbank. The ECB's key rates, which are much too low for Germany, are masking the problems. Private consumption thus looks set to rise by a strong 21⁄4% this year. Only much later will the roll-back of the labour market reforms of the former Chancellor Schröder start to have an adverse effect on employment growth and thus consumption.