What's going on?

Missing amidst all the coverage of the European Central Bank meeting last week were some economic data points that fell short of expectations. That continued today with a major survey of German business sentiment striking a more pessimistic note than economists were expecting.

What does this mean?

The survey from the Ifo Institute � which is a survey of business managers� current perception of and future expectations for the economy � declined to its lowest level since February 2015. That follows on the heels of another, Europe-wide survey of businesses that also hit its lowest point since February. That�s not terrible news, but it�s consistent with growth of only 0.3-0.4%, which really isn�t much. By comparison, the US probably grew around 2% in 2015 (although there are increasingly concerns that its growth might be slowing).

 

Why should I care?

The bigger picture: Growth everywhere appears to be slowing. The concerns about China are widely known and slow growth from emerging markets generally have weighed on Europe (as emerging markets are a major destination for exports). Initial data on 2015 4th quarter economic growth in the UK and the US is coming later this week (Wednesday and Friday, respectively). If Europe�s 4th quarter growth disappoints when it�s released in early February, it probably won�t be the only economy with slower than expected growth.

For the markets: Slowing economic growth is usually bad for stocks but good for government bonds. Most companies are exposed to the economy in general: when trade is booming and consumers are spending, companies tend to make more money. Global economic concerns are a major reason that stocks have performed so badly, so far, this year. A slower economy can be good for government bonds (especially high quality ones), as investors move into safer investments and central bankers are more likely to be accommodative (low interest rates equal higher bond prices).