German Ifo points to growth acceleration

The return of the island of happiness. Germany’s most prominent leading indicator, the Ifo, just beat even the wildest expectations by increasing to its highest level since April 2012. The headline Ifo reached 109.3 in November, from 107.4 in October. Both current assessment and expectations improved. The expectations component spurred to its highest level since April 2011. The German economy is cruising along smoothly. Growth in the last two quarters was partly affected by one-offs and the economy’s real strength is probably somewhere in between. Latest confidence indicators confirm that the economy should continue growing at around its potential growth rate in the coming futures. Particularly the near term outlook for industrial production has brightened again. Since the start of the year, order books have increased by more than 7% and there are encouraging signs that industrial production should rather accelerate than decelerate in the coming months. Production plans are at the highest level in more than two years and inventories just dropped to the lowest level since September 2011, boding well for future industrial production. Moreover, the increase of recruitment plans to the highest level since June 2012 indicates that the industrial sector is also returning as a source of future employment growth. All in all, German economic growth is clearly the last thing we have to worry about. A comfortable position for the next government. Contrary to most other governments in the Eurozone, the next German government will not have to start domestic crisis management but could and should use the good economic times to prepare the economy for the future.