- The IFO expectations index has rebounded in November and is now off what had been the lowest level in almost three years. The current conditions index also increased and overall Friday's release was somewhat better than both our and consensus expectations.
- The leading indicators for Q4 signal that growth has been stalling and negative growth in Q4 cannot be ruled out. Looking forward, we expect the IFO figures to improve over the coming months and that we will see a moderate recovery in 2013.
The IFO expectations index increased from 93.2 in October to 95.2 in November – the first increase in eight months. This level is slightly below the average value for this index. IFO current conditions also increased from 107.3 to 108.1. Despite decreases since the spring, the level of the current conditions index has remained remarkably resilient.
The aggregate IFO business climate increased from 100.0 to 101.4. Manufacturing expectations increased from 88.6 to 89.2. The level is still very low and apart from October the reading has not been lower since 2009. Overall Friday’s release is somewhat better than our and consensus expectations.
Germany avoided recession in Q3 and the leading indicators for Q4 indicate that growth has been stalling and negative growth in Q4 cannot be ruled out. The improvement in Friday’s number together with the positive signal in Thursday’s PMI indicate further improvement going forward.
Retail expectations increased sharply from 102.8 to 110.0. This is the most positive aspect of Friday’s release as it indicates that private consumption is recovering. Construction expectations also improved slightly from 102.6 to 104.5. In wholesale, expectations increased from 97.6 to 101.3.
Looking forward, we expect the IFO figures to improve over the coming months and that we will see a slow recovery in growth in 2013. Our IFO expectations model also points to further improvement.
The German economy is faced with headwinds, very low consumer confidence and ongoing fiscal consolidation. There has been a deterioration in its export markets but recently there has been some improvement outside Europe. The debt crisis continues to weigh on the German economy and investments, exports and private consumption have been affected negatively.
However, some support could come from the weakening in the EUR. Germany’s large exposure to emerging markets should support growth during 2013 as the policy response in China in particular should support the global manufacturing cycle.
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