Case Spike in Germany to Affect Upcoming GDP, Ifo results?

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Last week, new coronavirus cases in Germany averaged over 1,000 per day, marking the highest number since April 24. The steady growth has coincided with other countries across Europe in the middle of vacation season.

Following a meeting with French President Macron on Thursday, German Chancellor Merkel affirmed a commitment to keep borders open but stressed the need for political collaboration.

After the imposition of certain business closures in Spain and Italy, some analysts interpreted Merkel’s comments as an indication that Europe will prioritize targeted business closures to halt the spread of the virus.

Stock markets across the shared economy have been under pressure all week. Investors are weighing the possibility of further economic fallout if the number of cases is not brought under control soon.

The Data

We get an early start tomorrow with the release of the final German Q2 GDP just before the market opens.

Usually, it doesn’t cause a significant move in the market, since the information is out previously. But because of COVID, it’s likely harder for the officials to collect the data.

This means that it’s more likely to have a bigger revision this time around. And it could be enough to affect the market. Especially if it’s revised lower in an atmosphere of pessimism due to a potential “second wave”.

Projections are for quarterly GDP to repeat -10.1% and annualized at -11.7%. The result would officially confirm Germany is in a recession. Everyone knows that at this point, but it can affect the market’s mood.

German Business Outlook is Not Improving

Normally we’d pay the most attention to the headline Ifo Business Climate number. This is the merger of the other two.

However, investors this time around might be extra keen on the Ifo Business Expectations segment. This tracks how business leaders think the situation will be six months from now.

Given current projections from health authorities, by then, a coronavirus vaccine should be available. If companies are still hesitant about investing, then there is less chance of an economic boost in the near term.

Investors are likely to get extra worried if the Business Expectations segment were to fall below the Current Situation.

Expectations are for the headline Ifo Business Climate to slide further into contraction at 88.2 compared to 90.5 in July. Not a big rout, but it’s more worrisome that the majority of the drop is coming from the outlook.

Potential Movers Coming Up

Projections indicate that the Ifo Current Business Situation will come in at 82.9. This would be a small drop from 84.5 in the prior month.

Projections for Ifo Business Expectations are for it to make a marginally bigger excursion back into contraction at 94.2 compared to 97.0 prior.

What might worry the market even more is that this week, Chancellor Merkel is said to have a round of talks with state premiers next week.

The subject of the meetings hasn’t come out yet, but there is speculation that it might be the coordination of further COVID measures.

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