So much for the hopes and dreams of German decoupling from the Eurozone's economic troubles. How things have changed in just six months (see this discussion)! Germany's growth trajectory is now converging with the rest of the euro area's weakened economic conditions.
JPMorgan: - At the country level, the PMIs continue to point to a convergence in economic performance. Once again this month, the PMI improved in France and also in the periphery, whereas it slid further in Germany. At 47.0, the German composite PMI is now barely above the Euro area average and is pointing to a 0.5%q/q saar decline in GDP this quarter, pending the arrival of official activity data (e.g., IP) to help us fine-tune our estimate (+0.3%). This week’s 2Q GDP report confirmed that German domestic demand has now been stagnant for almost a year. The modest upward trend in consumer spending remains in place, with higher wages feeding through to gradually rising incomes. But, the uncertainties of the sovereign crisis and weaker external demand are manifested in reduced business capital spending, which is offsetting the modest increases in consumer spending. Notably, the German manufacturing PMI export orders index slid to a strikingly low level of 39.5 this month.At this stage it's only a matter of time before Germany's GDP (which is a lagging indicator) turns negative.