Key business and consumer sentiment data lie ahead for Germany as recession looms and inflation weighs on the economic outlook.
 

EUR currency crosses

The EUR currency crosses might be affected by the monthly Ifo Business Climate report for November due out on Thursday. Previously at the level of 84.3, the consensus sees business confidence for November at the level of 85.

Europe’s largest economy is tipped to fall into a recession in the fourth quarter, meaning this is a red-flagged release.  The Ifo institute forecasted a contraction of 0.6 percent in Q4 for Germany, and its research shows that one out of two companies expects to increase prices for goods and services over the next 3 months.

Inflation in Germany rose to 10.4 percent in October from 10 percent in September. If 50 percent of German companies still expect to raise their prices, it would likely push inflation upwards unless the European Central Bank (ECB) significantly tightens monetary policy. At the time of writing, the ECB’s policy is still looser than the Federal Reserve’s, meaning the flow of money is into US-denominated assets with higher interest rate returns, challenging the EUR’s strength.
 

GfK Consumer Confidence

Further insights into Germany’s economic cycle are expected on Friday with the release of the GfK Consumer Climate Indicator. Previously at the level of minus 41.9 in November, the consensus is for December’s result to be minus 39.6.

The negative consumer mood has affected expectations for income and spending in Germany. The ECB meets on December 15 against a backdrop of weak consumer and business sentiment but has little choice but to tamp down inflation.

There are further risks to Germany’s growth from China’s recent lockdowns and the ongoing war in Ukraine. In the latest developments, Germany’s trade authorities are planning to diversify the country’s trading partners after Chancellor Olaf Scholz said the mistake of dependence on one country will not happen again.

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