The latest release of the German Manufacturing PMI shows a continued economic expansion in Germany and similar data from the IFO confirm this. Nevertheless, momentum has slowed in the last couple of months; the August Sentix reading support this view.
There has been rising uncertainty with regards to the Russian-Ukrainian crisis, especially in light of the downing of MH17. Economic sanctions have been stepped up and are expected to hurt the already sluggish Russian economy. Russia is an important trading partner for Germany. Indeed, in 2013 German exports to Russia totalled €36bn*, with engineering products and the chemical industry important sectors.
More recently, some earnings releases pointed to the potential negative effects of the Ukrainian crisis. The unrest in Eastern Europe certainly hurts business sentiment but the degree to which it may hurt German GDP numbers going forward will depend on how the crisis plays out. The overall momentum of the German economy is sound while consumer sentiment looks set to remain robust. What’s more, positive US data and an improving economic situation in China should help ease the negative effects of the Russian crisis.
Henning Lenz, Head of Corporate Credit, Meriten Investment Management.
*Source: Council on Foreign Relations