Chart of the Week : Tough week for the German economy Chart of the Week : Tough week for the German economy Chart of the Week : Tough week for the German economy

Chart of the Week : Tough week for the German economy

Christopher Dembik

Head of Macroeconomic Research

Summary:  In today’s ‘Macro Chartmania’, we focus on the German economy which accounts roughly for 1/3 of the eurozone economy. Headwinds are increasing at a fast pace. Yesterday, the IFO business survey for this month fell sharply to 88.6 after a strong start of the year. Last week, the flash composite PMI for July dropped under the threshold of 50 for the first time since last December (indicating business activity is in contraction). Expect Q2 German GDP to contract (the first estimate is released on Friday this week). If business activity remains gloomy for the rest of the summer, the German economy is likely doomed for a technical recession this year.

Click here to download this week's full edition of Macro Chartmania composed of more than 100 charts to track the latest macroeconomic and market developments. All the data are collected from Macrobond and updated each week.

Sentiment in the German economy has dropped in July : At the start of the year, the German economic outlook was rather positive (the IFO business climate index was at 98.8 in February, just before the start of the Ukraine war). Household balance was strong and companies were satisfied both with the current assessment and the expectations. This is not the case anymore. The macroeconomic outlook has radically changed in the space of a few months. Companies are now betting on a long economic and energy crisis. The drop in the business climate continues this month, with an index out at 88.6 from 92.2 in June. The downturn in the business climate is driven by expectations for the next six months – which decreased to 80.2 in July from 85.4 in June. This is the sharpest drop since March and the third largest drop since the pandemic started. Recent surveys have confirmed risks to growth are tilted to the upside – think the flash German PMI estimate for July which was out in contraction territory last week, for instance. The stage is set for a gloomy summer season and, perhaps, an even worse winter season if the energy crisis becomes more acute.

We have plotted the expectations component and the current assessment together -see below chart. This usually gives us a signal on the future trend of the IFO business survey. We can take it as a leading indicator of the leading indicator. The current signal is quite ugly. It now stands at minus 17.4 – the lowest level on record. The previous lowest points were at minus 7.2 (Global Financial Crisis), minus 4.9 (Eurozone sovereign debt crisis) and minus 11.7 (Covid outbreak). This will translate into lower investments and hirings in the months ahead.

Downturn across key sectors : The business climate in manufacturing dropped to 90.2 in July from 93.5 in June. In this sector both the current assessment as well as the expectations component are in a free fall. The manufacturing is still exposed to supply shortages and dislocations in international shipping (there is little improvement, actually). Adding to that inflation across the board which is seriously harming margins. The business climate for the services fell sharply to 1.4 in July from 12.8 in June while expectations reached their lowest post-Covid level at minus 24.1. We could assume the travel industry is in a better shape (after two summers in a row of restrictions, Germans want to travel). This is not the case. The business climate has started to slowly get down. The index was out at 23.3 in June versus a post-Covid peak at 24.5 in May (there is no data for July yet). Expectations are worrying too (32.7 in June versus 50.6 in May).

Germany is on the brink of a technical recession : The June IFO survey adds to previous recessionary signals. Germany is facing a perfect storm (supply chain disruptions, inflation across the board which is denting consumption, energy crisis, lower global demand etc.). Next Friday, the first estimate for 2Q GDP growth will be released. Expect a contraction. If business activity remains subdued over the summer and energy crisis issues increase, the German economy will likely face a technical recession this year. The energy crisis is a much bigger issue than inflation for Germany, in our view. Last week’s reopening of the NordStream1 pipeline has helped to fill up the country’s gas reserves. They are now at 66%. But they are unlikely to reach the minimum threshold of 90% before the winter period. German politicians are trying to revert unwise energy policy decisions (such as the closure of nuclear power plants). But it will take time before it has a positive impact on the energy supply. We increasingly fear that the German government will need to resort to the rationing of electricity this winter. This will push industrial production in a free fall. No need to say that recession would follow up soon after.


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
United Kingdom

Support Centre
For existing clients, please click here to request support via the Support Centre.

Have a question about our products, platforms or services? Visit the Support Centre to find answers for our most frequently asked questions. If you are still unable to locate an answer to your question, you will also find contact details for your local Saxo office to speak with a representative.

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.