DAX is at its lowest since early June. The influx of negative information scared investors

Whole month's increase on the German DAX index it was lifted in just a few sessions as worse and worse news began to flood the market. On June 16, DAX broke a new record to fight today to maintain a positive rate of return on a monthly basis. The news, however, is not optimistic at the moment.

Germany with negative GDP growth

Recall that the German economy shrank by 0,3% in the first quarter of 2023. The revised data showed a second consecutive quarter of economic contraction, plunging Europe's largest economy into recession due to continued high price increases and a sharp rise in borrowing costs. Household consumption shrank by 1,2% as consumers reduced spending on various categories such as food and beverage, clothing and footwear, and home furnishings. In addition, there was a decline in new car purchases, potentially affected by the discontinuation of subsidies for plug-in hybrids and the reduction of subsidies for electric vehicles in early 2023. Government spending also saw a significant decrease of 4,9%.

Current data may indicate a deepening of the recession. PMI and IFO scare investors

The deterioration of sentiment in the German economy raises fears of a recession, according to the latest IFO and PMI reports. According to IFO report, the economic climate index fell to 88,5 points in June compared to 91,5 points in May. The weakness of the manufacturing sector is a major factor leading the German economy into a likely embrace deeper recession.

The manufacturing sector saw a significant deterioration in the business climate, reaching its lowest level since November 2022. Business expectations have dropped and many are struggling with low order backlogs. The services sector also saw its index fall and companies were less satisfied with the current situation.

PMI report confirms the deterioration of the economic situation. The Composite Output PMI, the most important indicator for the German economy, fell from 53,9 in May to 50,8 in June, reaching a four-month low. The recession in the manufacturing sector is deepening, with orders falling at the fastest pace in eight months.

Job creation also slowed to a three-month low. Companies report deteriorating demand conditions, with orders falling mainly due to customer uncertainty and inventory reduction. Forecasts for the future of the German economy are becoming increasingly pessimistic, with business expectations at their lowest level this year.

Recession fears stem from a prolonged decline in new orders and a general economic slowdown. Manufacturing firms are particularly concerned about these trends, while service firms, while still optimistic, have also seen sentiment decline.