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Ifo business climate index for Germany rises above expectations in July

Ifo business climate index for Germany rose stronger than expected in July. The index rose to 90.5 points from 86.3, as compared with consensus expectations of 89.3. Firms gave a better assessment of the current business situation and are more optimistic regarding the coming six months. Business expectations are therefore as high as they were last at the end of 2018. This rise in the Ifo highlights the good figures for the purchasing managers’ indices, of which the manufacturing PMI rose to 50 points in July and the PMI for the services sector to 56.7.

In spite of these encouraging figures, expectations about the recovery in the Germany economy should not be overstated, noted Commerzbank.

Several firms, especially in the sectors hit hard by the crisis, had to borrow to guarantee their survival in the lockdown. They will pay off their higher debts in the months ahead and therefore put the brakes on investment.

Even if figures are indicating that consumers are returning to the stores, the propensity to consume itself is likely to be rather restrained, said Commerzbank. Consumer sentiment for Germany surveyed by the EU Commission in May and June did not even half make up for the slump in the prior months. Unemployment continues to rise, although slowly, and according to estimates by the Ifo Institute, 6.7 million people were still on short-time work in June.

“A second wave of infection is on the horizon in Europe. The holiday season has started and with the increased travel activity the number of cases is likely to increase further. The risk of a second wave and the returning uncertainty should further dampen the willingness to invest and consume”, added Commerzbank.

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