Friday, April 23, 2010

Ifo continues Spring sprint

Up again. The German Ifo index surged again in April as current conditions improved significantly. The headline index increased to 101.6, from 98.2, and is now at its highest level since May 2008. The current assessment jumped to 99.3, from 94.5. At the same time, the expectations component continued its impressive upward trend of recent months, increasing to 104.0, from 102.0.

Today’s Ifo index adds further evidence that the pause of the German recovery around the turn of the year was nothing more than a temporary break. In terms of economic growth, the first quarter will have been another disappointment. Still, some moderate growth should not be excluded, yet. It only needs a marginal pick-up in industrial production and net exports in March to turn first quarter growth from slightly negative into positive territory.

Looking ahead, the underlying trend of the German recovery remains healthy: business confidence is high, order books are filling, recruitment plans are increasing and even investment prospects are improving. New car registrations in March were one illustration of the recovery gaining traction. The sharpest increase in three years was mainly driven by business vehicles, indicating that companies have started to invest into their truck and vehicle fleets.

All in all, market headlines of recent weeks had the potential for a severe depression. The Greek fiscal crisis, possible contagion of other Eurozone countries and the volcanic ashes: They all seem to threaten the recovery. However, German businesses seem to be untouched by these downbeat scenarios as most confidence indicators have returned to their pre-crisis levels. Maybe German businesses are too down-to-earth, just looking at their filling order books and ignoring dark clouds of fiscal consolidation. Nevertheless, if the real economy now follows up on confidence indicators’ promises, the near future looks very bright.

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