| German IFO business index January: On a positive trend |
| 25.01.12 12:02 | |
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For the third consecutive month, the IFO business index rose and printed 108.3, up from 107.3 in December. This was again somewhat better than our forecast (107.5) and the latest consensus (107.6). Business expectations, in particular, brightened considerably, 100.9 after 98.6 in December, while the assessment of the current situation softened a bit but remained at a solid level (down to 116.3 from 116.7). At its current level, the IFO business expectations index is now again slightly above its long-run average. The improvement in the business climate was visible across most sectors and manufacturing saw the strongest increase, up to 13.4 from 8.9, following a very weak showing in Q4 11. Importantly, manufacturers are getting more confident about export prospects, indicating that the stronger growth performance in the US and parts of Asia may soon be more than compensating for the negative effects on German manufacturing exports of the euro area sovereign crisis and weak demand in Southern Europe. Export expectations rose to 6.0 after bottoming out at 0.2 last November and production plans rose to 5.7, the highest in five months and also significantly above the October low of -4.1. At the same time, the assessment of inventories fell to 5.9 after peaking in December at 7.4 and the ratio of production plans over inventories, often leading economic activity, improved considerably. The business climate in construction rose to -3.7 from -6.3. Favourable weather conditions likely played a role but IFO reported that construction companies surveyed are significantly more confident about their six-month business outlook. We believe that the low cost of financing in Germany and positive price momentum in real estate are supporting a healthy outlook for residential construction over the medium term. Retailers reported a weaker business climate, down to -0.5 from 5.6, and wholesale fell to 10.5 from 11.2. But in contrast to retail, wholesale also saw some improvement in business expectations. All in all, today's encouraging IFO figures for January, on the heels of strong German flash PMIs released yesterday, confirm our view that the contraction of economic activity (GDP growth estimate: -0.2% q/q in Q4 2011) at the end of last year was a one-quarter soft patch and, in contrast to several other economies in the euro area, we will likely see modest but positive German growth again this quarter (GDP growth estimate: +0.1% q/q in Q1 2012). Both recent PMIs and IFO surveys indicate some upside risk to our Q1 growth estimates, while the odds even of a mild German recession have clearly fallen further. source: BarCap |
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