It starts out un-alarmingly. The optimism of German consumers weakens somewhat, according to the forward-looking Gfk survey, conducted on a monthly basis for the European Commission. So the overall index fell to 8.6 for September, from 8.9 in August. It was the first decline since January 2013.
The index bottomed in late 2008 below 2, after a breathtaking crash during the financial crisis. In late 2007, it had hovered above 9. Early 2014 was the first time since the prior bubble that the index broke above 8. And August’s level of 8.9 represented an ‘extremely optimistic economic outlook,’ as Gfk calls it. German consumers have been feeling good, and according to the headline index, they’re stillfeeling good up there somewhere in the rarefied air above 8.
But beneath the surface, there is serious trouble. Gfk reports that the sub-index of economic expectations, ‘in light of the intensified state of international affairs, completely collapses.’
It plunged 35.5 points to 10.4. The worst monthly plunge since the beginning of the survey in 1980. In a single month, it nearly wiped out all the gains of the boom of the last 12 months. Gfk cites the escalation of the situation in Iraq, Israel, the Eastern Ukraine, and particularly ‘the faster rotating sanctions spiral with Russia.’
This post was published at Wolf Street on August 27, 2014.