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Not Even a Dead-Cat Bounce for German Consumers’ Economic Expectations

Germany is expected to pull the Eurozone out of its funk by stimulating internal consumption. It is expected to allow the ECB to print money and stir up inflation so that other Eurozone countries like Spain or France can leverage that inflation to cut real wages, impoverish their people, devalue mountains of debt, make exports cheaper, and push imports beyond the reach of the poor.

The Eurozone is mired down, and it’s holding back the global economy. Germany would have to do its job. Not German exporters, for crying out loud – they’re causingall the problems, the official thinking goes. But German consumers, the same ones whose dour mood can last for years. They’d have to pull the Eurozone, and by extension the global economy, out of their funk.

But those consumers are getting cold feet, after businesses and investors have gotten cold feet months ago.

The Ifo Business Climate Index fell to its lowest level since April 2013. Business Expectations fell to their lowest level since December 2012. In manufacturing, expectations dropped into the negative for the first time since January 2013, dragged down by flagging exports. Construction hit the lowest level since December 2012, and wholesaling hit the lowest level since March 2010. The Ifo Employment Barometer backed off as well. The German economy is sputtering.

The sentiment of “financial experts” has been diving for nine months in a row. TheZEW Indicator, whose the long-run average is 24.6, now sits at 6.9, the worst level since December 2012, when markets were climbing out of the debt crisis debacle (ugly chart). The report blamed the “sanction spiral with Russia” and “disappointing” economic activity in the Eurozone.

For months, German consumers had been blissfully oblivious to the fretting by businesses and financial experts. “Extremely optimistic economic outlook,” is how GfK, which conducts the monthly consumer survey, described it at the time. But now, for the second month in a row, their mood soured. In the forward-looking GfK survey, the overall index fell to 8.3 for October, from 8.6 in September and from 8.9 in August – after a spectacular uninterrupted rise going back to January 2013. So on the surface, they’re still feeling pretty good.

But beneath the surface, oh my!

In late 2007, another one of those rare periods when Germans were feeling high, the index had hovered above 9. A year later, during the financial crisis, the index plunged below 2. And it took until early 2014, to get it back above 8.

Then last month, GfK reported that the sub-index for economic expectations, “in light of the intensified state of international affairs, completely collapses.” It had plunged over 35 points to 10.4, the worst plunge since the beginning of the survey in 1980. GfK cited the escalation of unrest around the world, particularly in Ukraine, and “the faster rotating sanctions spiral with Russia,” which have hit exports and could become “a real danger for the German economy.”

After that historic plunge last month, you’d expect some sort of bounce. Things don’t deteriorate that fast. It must have been an overreaction. Not even the financial crisis had come close. Or maybe it was a statistical fluke. At least, you’d expect a dead-cat bounce.

But heck no. Consumers’ economic outlook dropped again, this time by six points to 4.4, the lowest level since July 2013.

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