- The Ifo expectations is rebounding in December and points to further improvement in the coming months. The current condition index decreased but overall today's release is somewhat better than consensus expectations.
- The leading indicators have turned and we believe we are past the bottom in the euro area cycle. German growth will be weak in Q4 and negative growth cannot be ruled out. Looking forward, we expect the Ifo figures to improve over the coming months and to see a moderate recovery in H1 13.
The Ifo expectations index jumped to 97.9 in December from 95.2 in November – the highest level since May. This level is slightly below the average value for this index. Ifo current conditions decreased to 107.1 from 108.1. Despite the decrease in the current conditions this index has remained remarkably resilient in terms of the level.
The aggregate Ifo business climate increased to 102.4 from 101.4. Manufacturing expectations increased from 89.3 to 93.0. The level is still low, though. Overall today’s release is somewhat better than consensus expectations and broadly in line with our forecast
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 today’s number together with the positive signal in Friday’s PMI indicate further improvement going forward. The improvement in the leading indicators has weakened the case for an ECB rate cut in January.
Construction expectations increased sharply to 107.8 from 104.6, which is the most positive aspect of today’s release. Retail expectations were broadly unchanged after a jump in November, indicating that private consumption is recovering. In wholesale expectations decreased to 101.0 from 101.3.
We expect the Ifo figures to improve over the coming month and to see a slow recovery in growth in 2013. Our Ifo expectations model is also pointing to further improvement.
The German economy still faces headwinds from low consumer confidence and a deterioration in its export markets but recently there has been some improvement outside Europe. The debt crisis has been weighing down on the German economy and investments, exports and private consumption have been affected. However, some support can come from the weakening in EUR.
Germany’s large exposure to emerging markets should support growth during 2013 as the policy response in China in particular will support the global manufacturing cycle. Also fiscal consolidation will weigh less on German growth in 2013 and easy monetary and financial conditions will support the German recovery.
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