Is Germany still the champion?

Sun Jul 20, 2014 5:13am EDT
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By Philip Blenkinsop

BRUSSELS (Reuters) - A week on from its World Cup soccer victory, Germany may return to center stage, though this time not with fan celebrations but concerns over the health of Europe's economic motor.

Investors saw dark clouds building on Friday after a Malaysian airlines jet was shot down at the Ukraine-Russia border and Israel launched a ground offensive in Gaza. That depressed shares and other risk assets, but the events are yet to disturb economic forecasts.

"We've seen a delayed impact of China and the Ukraine crisis," said ING economist Carsten Brzeski. "This is an explosive cocktail, but right now with limited impact on growth. The Ukraine/Russia issue was already there."

In a week relatively light on U.S. indicators, economists are looking for further signs that Europe's recovery and even German growth may be stalling, putting more pressure on the European Central Bank to act.

Across the Channel, minutes from the Bank of England may be the last to show unanimous backing for a stable bank rate of 0.5 percent. The case for tightening may then be reinforced by second quarter GDP estimates likely to show solid growth.

For Germany, the views of purchasing managers (PMIs) on Thursday and of company chiefs surveyed for Friday's influential Ifo report should show whether a slowdown of Europe's largest economy detected in the second quarter has spread to the third.

Weakness in German industrial output and both domestic and foreign orders have pointed to a poor April-June period after 0.8 percent expansion in the first three months of the year, the fastest rate in three years.

Last week's ZEW index of analyst and investor morale for July, which dropped this month to its lowest level since December 2012, suggested that the third quarter had also started shakily.   Continued...

A photograph taken using long exposure shows a goalpost which has been illuminated with torches at a leisure facility in front of the European Central Bank (ECB) headquarters in Frankfurt June 1, 2014. REUTERS/Ralph Orlowski