Difficult times for the expected economy

Since 1989, the Ifo Institute interviews quarterly experts of the changing economic situation and other economic data. The results for the euro area are based in October 2018 on the reports of 370 experts. As a result, the president of the Ifo, Clemens Fuest, expects to "troubled waters" for the economy of the euro area.

In Italy and Spain, the situation and prospects have deteriorated the most. Especially in the whine of the debt budget in Italy, the ratings of experts are significantly lower. The outlook for the country weighs heavily on the sharp rise in bond rates due to the budget dispute between the government and Brussels. Experts estimated that the situation and expectations were significantly more negative than in the previous quarter.

Spain is considered a possible candidate for contagion. Expectations for the country are much more pessimistic compared to the previous quarter. After all, in badessing the current situation, there has been only a relatively small downward correction.

In Germany and France, expectations remain almost unchanged, but the current situation is considered slightly worse. In the Netherlands, on the other hand, the badessment of the situation has improved.

The pessimism of the experts seems to indicate that the Ifo Institute, because of global trade conflicts, has also lowered the export forecasts of the euro area. Because the conflict between the world's two largest economies, the United States and China, is weighing on the global economy. At the same time, experts expect short- and long-term interest rates to rise over the next six months and the US dollar will continue to appreciate. The forecast of the inflation rate for this year increases slightly from 1.7% to 1.8%.

Among them, Germany, strong in exports, is particularly affected. In Germany too, the mood has already darkened. Thus, the economic performance of this country has declined in the summer, as evidenced by the calculations of the Kiel Institute for the World Economy (IfW) last Friday.

According to the institute, this is due to decreases in production in the automotive industry. This is also due to the economic problems faced by the main emerging markets, which are important sales markets for the German economy. Economic output in Germany is expected to have fallen about 0.3% in the third quarter, according to the report.

Although temporary special effects also play a role, especially the conversion of the European exhaust tests, with which the German car manufacturers had problems. Nevertheless, the deterioration of the economic climate in Europe and in much of the world should not lead to a strong recovery in the current economic cycle. The unresolved issues of UK exit regulation and the EU budget dispute, which could trigger a new banking crisis, leave little room for optimism.

Deutsche Bank also reduced its growth forecast for the German economy in the coming year from 1.7% to only 1.3%. She cited the trade dispute between the United States and China and the growing economic problems in the major emerging economies, which are important sales markets for the German economy.

The European Central Bank (ECB) is also increasingly thinking about how to react to a possible economic slowdown. Among other news, news agencies are discussing a new edition of long-term loans in central bank money to banks, called longer-term refinancing operations (LTRO).

The index of Purchasing Managers of the IHS Markit Institute, which had lost 1.5 points to 52.2 points in October, presented a gloomy picture. Although the barometer is still above the 50-meter threshold, it has also fallen to its lowest level in nearly two and a half years.

For the first time since the end of 2014, companies saw a drop in new orders. "Some of the executives interviewed attributed this new slowdown to ongoing conflicts in the auto industry and the reluctance of its customers abroad," IHS Markit told the survey of 400 companies. For the first time in four years, companies appeared skeptical in the next twelve months.