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Rhine troubles add to pressure on German industry

The fall in the Rhine’s water level is a small problem for German industry compared to the gas crisis, or indeed the recent shortage of semiconductors. But if it persists until December it could subtract 0.2ppts from GDP in Q3 and Q4 and add a touch to inflation.

10 August 2022

German office market at a turning point?

German prime office yields jumped in Q2 amid early signs that the weakening economic outlook is weighing heavily on the office market. And while there were strong rental gains in the first half of the year, we think growth will slow as economic headwinds keep a lid on occupier demand and vacancy rates continue to climb.

5 August 2022

German Industrial Production (Jun.)

The small increase in German industrial production in June was not enough to reverse declines earlier in the year and left output well below pre-pandemic levels. Things are going to get more difficult in the second half of the year due to the energy crisis, rising borrowing costs and falling demand.

5 August 2022
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Germany Flash Inflation (July)

The increase in German inflation to 8.5% in July was higher than most anticipated and suggests that euro-zone inflation will also come in above expectations tomorrow. This will support what we assume is the majority view on the ECB that another rate hike of at least 50bp is needed in September.

German Ifo Survey (Jul.)

The further decline in the German Ifo Business Climate Index (BCI) in July adds to the evidence that the German economy is on the brink of a recession as high energy prices and worries about energy security take their toll on firms’ expectations for the months ahead.

Euro nears parity, energy effects erase German surplus

The depreciation in the euro to its lowest level in almost two decades against the dollar this week in large part reflects investors’ view that the ECB will tighten less aggressively than the Fed. The apparent lack of concrete progress on the so-called Transmission Protection Mechanism has only reinforced that opinion. In any case, we suspect it could still take some time to agree all the details, risking another sell-off in peripheral bond markets and perhaps pushing the euro below parity with the dollar.

German wage settlements likely to keep inflation high

Very high inflation and low unemployment are driving German unions to seek big pay rises in this year’s collective negotiations. We think nominal pay growth will be in the region of 4-5% this year and 3-4% in 2023. Although this would result in substantial real wage cuts, it is above the level of around 3% which is compatible with the ECB’s inflation target.

Germany and Spain Flash Inflation (Jun.)

The fall in inflation in Germany and the increase in Spain in June largely reflect temporary factors and will not alter the consensus view at the ECB that interest rates need to be increased quite rapidly.

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