The German market was expecting a worsening of the economic situation, but not that significant

The German DAX stock index may be up 0.2 % today, but I have to say that if I were a holder of German stocks, I would sell them immediately after reading today's news from our western neighbors. What happened? The ZEW Institute has indicated that Germany remains the sick man of Europe. Let's be specific: Germany's assessment of the current economic situation dropped 8.4 points to minus 77.3. Much worse was the confidence index, which fell to 19.2 points in August from July's level of 41.8 points. The market was expecting a deterioration, but not this significant. This is an absolutely brutal fall. A similar drop occurred two years ago - during the summer of 2022. At that time, stock markets were going through a period of sell-offs. This may be a clue to what will follow in the near term. This brings us back to our commentary from early last week, in which we said that stock market declines are not yet averted, even though things seem to be calming down.

Back to Germany. There, the prospects of the German economy picking up anytime soon are collapsing. Germany can look across the border and lament that its problems are someone else's fault. Indeed, we see that economic expectations for the euro area, the United States and China are also deteriorating. This is having a negative impact, especially on Germany's highly export-dependent sectors. However, it is not just about the weak demand for German goods due to the weakness of foreign countries; it is also (and above all) about the uncompetitiveness of Germany, which is deliberately destroying its competitiveness with the Green Deal.

In addition, there are other threats - we see the ambiguous direction of the European Central Bank's monetary policy. The latter is cutting interest rates, but it thinks a lot about each step downwards. In addition, the US economy is not showing a growth hurricane. And to make matters worse, we see fears of an escalation of conflict in the Middle East. An Iranian attack on Israel could come within a week. But Germany should pour itself a clean wine and find fault mainly with itself. If Germany is the Mecca of European industry, you need two things to make it happen - cheap energy and the industrialists' hands not being tied. But it is Germany that is pushing hard for green policies. The result, in turn, is expensive energy and the declining capacity of German industry to produce. Just look at the car manufacturers as more and more standards push them to adjust production. As a result, German cars are now unable to compete with Asian competitors not only on price, but also on technology. Germany will not emerge from stagnation under these conditions, and the GDP result for this year as a whole will be around zero. This is, of course, bad news for the Czech economy. It will have to rely on domestic demand to help it grow this year, and that too is not good. Not surprisingly, the koruna is weakening slightly to CZK 25.19/EUR today.

The dollar weakened slightly today against the euro to USD 1.094/EUR.The dollar was not supported by producer price statistics: the Producer Price Index rose by 2.2 % yoy in July. This marked a slowdown from the previous level of 2.7 %. Crucially, however, the market was counting on a result of 2.3 %. Thus, US upstream prices are rising more slowly than expected. If tomorrow's US consumer inflation statistics turn out similarly, it would increase the chances of a more significant rate cut by the US Federal Reserve. And that would push the dollar to more significant losses towards the $1.10/EUR level. The Czech stock index PX adds 0.1 % today and the Slovak index SAX falls 0.2 %.

Markéta Šichtařová

nextfinance.cz

Nextfinance s. r. o.