More signs of economic contraction are emerging daily. Today the German research firm ZEW (Center for Economic Research) announced that its index for investor’s confidence took a big hit. Investor expectations for Germany fell to minus 24.7 in July from minus 16.1 in June, recording a fifth straight decline.
IFO, a gauge for the euro area also plunged. Both it and the Zew are at levels not seen since 2012, when the region was mired in a crippling debt crisis. The Munich based economic research firm IFO just reported that the manufacturing and construction sectors reported a cooldown in the business climate. In wholesaling expectations continued to cloud over, while consumer sentiment weakened slightly in retailing. The business situation indicator fell in the service sector.
The main reason for the latest decline in investor sentiment and the business climate in Germany is the persistently poor outlook for Germany’s political atmosphere, where Chancellor Angela Merkel continues to struggle to gain full control of her coalition government. The decision by the Trump administration to impose tariffs on steel and aluminum have added to the generally poor atmosphere everywhere. Indeed there is a feeling that a new global recession is in the making.
The dwindling confidence by business leaders and investors in Germany which has Europe’s largest economy is not good. As more investors exit the shares of German and European companies their share prices will decline and pessimism will increase. For this reason and also since the Chinese stock market is now in a Bear market, global investors will avoid all equities including US equities. With each passing day the probability that January 2018, marked the high for the S&P 500 for many years to come have increased.