The situation in Germany is far from critical

The euro/dollar rate approached the maximum of November 15 and is still above 1.04. We got acquainted with the Ifo index and the minutes of the October meeting of the ECB. In China, the number of people infected with covid is growing and reaching record levels.

Due to the lack of data from the US, more attention is focused on the leading European economy. The Ifo index, released yesterday, indicates that companies are seeing some improvement in the economic situation. The risk of gas rationing has eased in recent weeks, and the German government has significantly increased aid packages.

In addition, the shortage of supplies has decreased. The current business situation worsened slightly to 93.1 points, but expectations for the next six months improved significantly (from 75.9 to 80 points).

As a result, the extremely large discrepancy between a fairly firm assessment of the current business situation and the pessimistic expectations of entrepreneurs narrowed somewhat. The main indicator of the business climate rose to 86.3 points. Despite the possibility of a recession in Germany, there have been some signs of easing recently that suggest that the economy will not collapse, as was the case with the financial crisis of 2008-2009 or after the start of the pandemic.

Germany has gas

Gas storage facilities in Germany are filled to the brim, with high reserves and significant savings. The weather is favorable so far. All this makes gas rationing unlikely at the moment. Second, the federal government’s aid packages are now so large that, in arithmetic terms, they largely offset the increase in the cost of energy imports. This stabilizes the economy, although more spending puts a burden on the budget and leads to higher inflation in the long run. In addition, it should be added that supply bottlenecks have clearly decreased.

About 80 percent at its peak The number of German manufacturing companies complaining that their production is being hampered by a lack of raw materials fell to 59.3 percent in November. Ifo says. The report on the October meeting of the Council of the ECB confirms the likelihood of a further increase in interest rates.

What will the ECB do?

At the same time, we have not received any hints about the pace of further tightening of monetary policy. The ECB plans to continue to counter the risk of disruption to long-term inflation expectations and a possible wage/price spiral. The Board is particularly concerned about the benchmark.

The minutes highlights that recent data on the dynamics of price increases have not been encouraging and that the data continues to exceed expectations. With regard to the December meeting, the Council will have more information at its disposal, which was considered especially valuable in view of the high market volatility and uncertainty inherent in the current situation. The new forecasts will provide more information on the horizon until 2025.

COVID in China

In addition, they will assess how heightened recession risk, commodity price developments and tightening financial conditions since the September meeting will affect the medium-term inflation outlook. In Europe, good mood continues despite the worsening epidemic situation in China.

Official statistics showed that the number of new cases of coronavirus infection rose by more than 30,000 on Wednesday, surpassing the April peak when the epidemic broke out in Shanghai. Some local governments have returned to quarantine. This situation happened in Zhengzhou - the largest factories for the production of smartphones are located there. Beijing is building temporary quarantine facilities. The need for space to isolate infected people has increased. The upbeat news is that there are reports of more developer support in China. Some of the largest state banks are offering new loans to several large construction companies.