Take aways: 

• More and more Ifo data suggests that Germany is heading into a recession 

• Fears of a wage-price spiral in Germany are overstated by German hawks

• Service price expectations look to settle above pre pandemic trends 

• Remember to look at hard data to get the full picture

Following the full release of the monthly Ifo figures, let’s examine the growth and inflation prospects in Germany as we head into autumn. Increasingly, Ifo data hints that a recession may be imminent in Germany, with both growth and inflation expected to slow. Although the data appears concerning, we remain cautiously optimistic as high frequency and robust data indicate that conditions are largely static.

In assessing Germany’s growth outlook through the manufacturing lens, several factors emerge. Firstly, the stability in European gas prices and reduced volatility positively influence Germany’s chemical sector, reflected by favorable orders to inventory ratios highlighted in chart 1.b. Conversely, the situation in the German automotive sector is more troubling, with significant month-over-month declines. Coupled with sluggishness in other major areas of German manufacturing, these indicators traditionally signal an impending recession.

Chart 1.a: Historically this is beginning to smell like a recession

Chart 1.b: Chemicals enjoying the calmness in gas prices