German Ifo beats expectations in April

Happy-go-luckies or down-to-earth pragmatists? In any case, German businesses surprised once again with an almost hard-headed optimism in April. Germany’s most prominent leading indicator, the Ifo index, just increased to 111.2, from 110.7 in March. Even more surprising, both the current assessment and the expectation component improved. The current assessment component increased to 115.3, from 115.2 in March, and stands now at its highest level since April 2012. At the same time, the expectations component rebounded from the March decrease and stands at 107.3, from 106.4. After a weaker ZEW index and yesterday’s PMI increase, today’s Ifo index illustrates that financial market participants seem to be more worried by possible cold headwinds from the East than economic participants. It looks as if currently German businesses stick to the facts and do not get concerned by eventualities. And the facts up to now speak a clear language. Order books, both domestic and foreign, are still growing, inventories are low and activity in both manufacturing and services is picking up. Moreover, the exceptionally mild winter weather has boosted construction in the first months of the year. For the first quarter, construction should have been an important growth driver for the entire economy. Even if the sector would not grow at all in March, it could add around 0.5%-point to German GDP growth. However, despite today’s surprisingly strong Ifo and the expected growth acceleration of the German economy in the first quarter, it would be foolish to turn a blind eye to possible downside risks for the economy. With the Ukraine crisis, Chinese uncertainties and emerging markets slowing down, more and more gusts of wind, particularly from the East, could easily disturb the current spring fever on the Eurozone’s island of happiness