The atmosphere in the German economy deteriorated massively after the Russian invasion of Ukraine. The barometer for the business climate IFO, the most important leading indicator for the economy in Germany, fell from 98.5 to 90.8 points from February to March. This brings the recovery phase to an abrupt end. Companies in particular estimate their business situation and especially the outlook for the next six months worse than before. In the manufacturing industry as well as in the service sector, the index fell more than ever before. Inflation also seems to be rising faster than expected. Due to higher energy prices and further supply bottlenecks, the inflation rate continued to rise. According to preliminary calculations, it amounted to 7.3 per cent, as the Federal Statistical Office (Destatis) recently announced.
The German GfK consumer index also fell by more than 7 points, with the economic and income outlook being particularly low. Uncertainty about economic consequences of the war in Ukraine and rapidly rising energy prices have a noticeable impact on general consumer confidence. In France, consumer confidence decreased by 6 points. In the almost 50-year history of this survey, there were only two months with a stronger decline: in April 2020 after the outbreak of the pandemic and in May 1993. The monthly indicator for consumer confidence in the USA, which is published by the Conference Board, has also been moving for about half a year 10 to 15 points below the level that prevailed in the two years before the outbreak of the Corona pandemic, currently at 107.2.
Despite declining economic indicators, global stock markets show a rebound. US stocks recovered from an earlier decline, with the three major indices at six-week highs. The S&P 500 increased 0.7% after falling 0.6% earlier. Technology stocks were a big contributor to the rebound. Retailers and other companies that rely on consumer spending also contributed to the rise in the benchmark index. Tesla was up 8%, the biggest gain in the S&P 500, on news that the electric vehicle maker is considering another stock split. The news spread optimism despite the closure of Tesla's giant factory in China due to a 9 days-lockdown in the city of Shanghai. Other major winners were Microsoft and Amazon, which rose 2.3% and 2.6%, respectively.
European stocks were slightly higher as well, led by automakers and defensive sectors such as utilities and healthcare. Asian stocks also increased recently, supported by Chinese e-commerce companies. Hopes for a peaceful solution in Ukraine are clearly reflected in the German stock market. The Dax could further improve its gains and is currently priced at 14,439 points. The DAX has thus finally made up for the losses since the Russian attack on Ukraine more than four weeks ago.
Climate, Corona, war and inflation are causing consumer confidence and economic forecasts to collapse. This negative scenario is still contrasted by predominantly positive corporate figures and confident investor decisions on the international stock markets.
The risk is that negative events and basic sentiment will start a downward spiral of the economy. Politics must resolve this dilemma and steer the economy in a positive direction.
