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Not Even a Dead-Cat Bounce: Russia Sanctions, Whiff of Reality Sink ‘Economic Expectations’ in Germany
Wolf Richter www.wolfstreet.com www.amazon.com/author/wolfrichter
Germany is expected to pull the Eurozone out of its funk by stimulating internal consumption. It is expected to allow the ECB to print money and stir up inflation so that other Eurozone countries like Spain or France can leverage that inflation to cut real wages, impoverish their people, devalue mountains of debt, make exports cheaper, and push imports beyond the reach of the poor.
The Eurozone is mired down, and it’s holding back the global economy. Germany would have to do its job. Not German exporters, for crying out loud – they’re causing all the problems, the official thinking goes. But German consumers, the same ones whose dour mood can last for years. They’d have to pull the Eurozone, and by extension the global economy, out of their funk.
But those consumers are getting cold feet, after businesses and investors have gotten cold feet months ago.
The Ifo Business Climate Index fell to its lowest level since April 2013. Business Expectations fell to their lowest level since December 2012. In manufacturing, expectations dropped into the negative for the first time since January 2013, dragged down by flagging exports. Construction hit the lowest level since December 2012, and wholesaling hit the lowest level since March 2010. The Ifo Employment Barometer backed off as well. The German economy is sputtering.
The sentiment of “financial experts” has been diving for nine months in a row. The ZEW Indicator, whose the long-run average is 24.6, now sits at 6.9, the worst level since December 2012, when markets were climbing out of the debt crisis debacle (ugly chart). The report blamed the “sanction spiral with Russia” and “disappointing” economic activity in the Eurozone.
For months, German consumers had been blissfully oblivious to the fretting by businesses and financial experts. “Extremely optimistic economic outlook,” is how GfK, which conducts the monthly consumer survey, described it at the time. But now, for the second month in a row, their mood soured. In the forward-looking GfK survey, the overall index fell to 8.3 for October, from 8.6 in September and from 8.9 in August – after a spectacular uninterrupted rise going back to January 2013. So on the surface, they’re still feeling pretty good.
But beneath the surface, oh my!
In late 2007, another one of those rare periods when Germans were feeling high, the index had hovered above 9. A year later, during the financial crisis, the index plunged below 2. And it took until early 2014, to get it back above 8.
Then last month, GfK reported that the sub-index for economic expectations, “in light of the intensified state of international affairs, completely collapses.” It had plunged over 35 points to 10.4, the worst plunge since the beginning of the survey in 1980. GfK cited the escalation of unrest around the world, particularly in Ukraine, and “the faster rotating sanctions spiral with Russia,” which have hit exports and could become “a real danger for the German economy.”
After that historic plunge last month, you’d expect some sort of bounce. Things don’t deteriorate that fast. It must have been an overreaction. Not even the financial crisis had come close. Or maybe it was a statistical fluke. At least, you’d expect a dead-cat bounce.
But heck no. Consumers’ economic outlook dropped again, this time by six points to 4.4, the lowest level since July 2013. GfK explained the phenomenon this way:
Consumers feel that the ongoing tense geopolitical situation and the economic weakness in a number of Eurozone countries will have a greater impact on the German economy. The economic development is showing the first signs of skid marks.
In Q2, GDP fell 0.2%. In Q3, the economy is expected to stagnate or, according to wishful thinkers, improve slightly. Consumers rode through the Q2 debacle without pause, but now they’re worried.
In the wake of swooning economic expectations, income expectations, after hitting an all-time record high in August, fell 4.6 points for September and 6.7 points for October to 43.3. The “continued high level,” as GfK called it, was a reflection of the “stable” labor market and the fact that “real income is rising as a result of very low inflation. These are decisive pillars for income expectations.”
The all-important phrase in Germany: “real income is rising as a result of very low inflation.” Very low inflation is keeping income expectations from heading south even faster! More on that in a moment.
The willingness-to-buy indicator dropped 6.8 points to 42.4, now below the level of a year ago, beaten down by plunging economic expectations and deteriorating income expectations. Last month, GfK called the level “relatively robust.” Now it’s less so, but it is still propped up by rising real wages, low inflation, and low interest rates. For the moment, consumers are still “more inclined to consumer rather than save their money.”
Someone should tell ECB President Mario Draghi and inflation mongers in the French government and elsewhere what German consumers, on whom the salvation of the Eurozone apparently depends, will do with their wallets when they see inflation eating into their wages and scarce savings. They’ll close that wallet! And they’ll go on one of their infamous buyer strikes that can last for years.
GfK blames the international crises that are “slowing down the consumer climate.” Consumers are already showing “the signs of uncertainty.” And there is “a danger that private consumption could no longer play its role as an important pillar of the economy.”
And that would be the final nail. Investor sentiment has been tanking for nine months. The business climate has been deteriorating for six months. GDP in Q2 fell. Q3 doesn’t look promising. And this is the vaunted economy whose consumers are supposed to pull the Eurozone, and by extension the global economy, out of its funk. Prost!
And now a true debacle is unfolding, just when we thought the euro was finally safe. Read…. Standard & Poor’s Warns on Germany Triggering the Next Debt Crisis, Investors Would Lose their Shirts
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I thought reality and truth were the same thing.
Nowadays truth is what you believe, reality is what you ignore.
Do I smell a call out of Germany (blaming them) before they pull the rug out of the EU? Man, this is getting extremely interesting.
Germany remains in a state of self-admiration. The loss of their status as "export-worldchampion" to China went almost unnoticed. They prefer to compare themselves to France and Italy.
If Merkel loses control they WILL pullout then it will be determining the speed of the blast wave as the EU falls apart. If Putin is smart he will keep quiet and wipe his fingerprints off since a large part of Russia's income comes from a coherent EU.
Germany as well as America have benefited from the deeper problems in other parts of the world. That means many view these two countries as better places to invest then a country "on the brink". This also means an increased probability that a bubble is occurring in these markets. I'm amazed how little attention is being given to this issue.
While being far from trouble free and sitting pretty, America has been described as the least ugly house on the street. Germany can be viewed in a similar way and a great deal of money has flowed into the country giving the false impression all is well. More on this subject in the article below.
http://brucewilds.blogspot.com/2013/03/floating-bubbles-and-germany.html
Russia stop the gas please!
The "coalition of the stupid" are drowning in their own incompetence and lies. Reality always wins.
Sadly it can take a little longer than we want, but yes reality and its good friend truth do show up at the end.
Viewing the situation from Q99x2 and in light of the oil reserves in the Kara Sea I suggest that Goldman Sachs no longer pursue war but instead strike a deal between the NWO and Vladimir Putin.
My dignity would be besmirched if you hit me in the face with a coin. -M. Hurley
They thought they had a deal with Putin.
But he was just playing for time until Russia had regained some strength.
He is is still playing for time now, and the bankers have caught on, and are desperate to bring
this to a head now.
The euro is the only thing keeping German industry alive right now. The yen slide is crippling European exports and this will not stop anytime soon. Should the d-mark resurface, exports will immediately price 20% higher or more and German industry will essentially hollow out. At the same time, uber expensive bunds, bobl, and schatz allow Germany to keep intact similar structural rigidities which somehow make the rest of the EU lazy and indolent.
German virtue seems always mingled with a touch of blindness. This does not seem such a terrible failing in comparison to other faults. Yet Melpomene always hates hubris the most.
They didn't "somehow" make the French look lazy and indolent; if you don't understand that they are lazy and indolent; and have poor quality control; you;re just not paying attention to the reality on the ground.
You might be surprised; the "20%"; is your guess; my guess is it's not far wrong, but it will be temporary; also, people are willing to pay for quality. the British didn't sell machine tools or Diesel Engines cheaply; they sold the world;s best; and everyone knew it. You wanna buy a Chinese machine tool to save money? NOt if you want to have a surviving business.
Japanese precision industry is in my view the standard to other economies aspire. In heavy industry they are just as good, barring the unique TII group. In robotics, better bar none. Speaking in broad brushstroke, of course.
Despite being hamstrung by decades of a steadily rising yen. This is over and the game has changed, Japan favorable.
"Let them HEAT with cake!"
Or Nuland 'cookies'."
An American, not US subject.
§
The Germans are the running dogs of Brussels and Obama.
Yes. I haven't heard a voice from Europe which dissented from the US world view since 2001. Come to think of it , the only ones left in the world are Putin and Natanyahu. Leadin the pack for drooling sycophancy are Australia and UK. Merkel is dissapointing = I thought she might have balls and brain,
No, it was in Germany interest to be in EU before , now it no longer is
Read the book. the German Leaders were blackmailed into the (French managed Euro); the German people were never, at any time, allowed to vote on this. it was never in their interest; and certainly is not now in their interest. The Euro is starting to smell; like a week old herring.
The scummy US State Dept, Oligarchs, Dems, Obama and Neo Cons with the UK start this scam to loot the Ukraine with the Ukie oligarchs. This causes a war with Russia becaus ethe scum need a cover story as they loot the Ukraine.
Meanwhile - the Europeans end up getting destroyed in the middle. This is amazing evil Z-state dept BS criminality where they want to get Putin and destroy Euroipe and the Europeans STILL don't get it.
The unbalanced nature of "Europe's" economy is really starting to be seen by all the world now in my view. The most critical aspect besides the obvious fact that Germany truly is the engine for the near totality of growth an innovation in the EU is the fact that she is also a FEDERATED Republic.
Given her History as an autarkic totalitarian State and said consequences of that History I think the idea of supporting a supremely un democratic EU is, well..."too Nazi like."
They've made out like bandits under NATO's military protection...as has the rest of Europe I might add. I think however they've really "screwed the pooch" as they used to say in my Army days when it came to a response to the Lehman collapse.
That would be not just Germany but all of Europe.
As a consequence I strongly believe the EU's days are numbered insofar as it being operated under a strict single authority with a single currency who's primary purpose is inflationary and not in the interest of recovery.
We'll see what happens if the greenback really starts to soar. I do not see a war resulting from this...but the Maasticht Treaty clearly is done.
Bavarian Secession Party has 83.9% yes for secession from Germany in radio poll . See http://www.br.de/radio/bayern1/sendungen/am-morgen/bayern-abstimmung-una...
See also
http://andreswhy.blogspot.com/2014/05/belarus-and-european-instability.html
That whiff would only be the tootsie rolls in the kitty litter box.
German consumers need to buy more Polish apples.
How them sanctions working out Germany? Putin is not the bad guy. Obama, the Dems, NEoCons and oligarchs are.
Wondering what whack job down arrowed u. Lololol slimy little sock puppet
The attack of the random down voter. If you say you like puppies, ice cream and pretty girls he'll down vote for your evil ways....
Fair and balanced?