Monday, January 26, 2015
German Ifo increases in January
Good news from the perfect little world. German business confidence confirmed the decent rebound of the economy in the final quarter of the year. Germany's most prominent leading indicator, the Ifo index, just increased for the third month in a row to 106.7 in January, from 105.5 in December. While the current assessment component improved to 111.7, from 110.0, expectations increased to 102, from 101.1 in December. The rollercoaster ride of German economic data could still last for a while. The conciliatory end of the year 2014, with an estimated annual growth rate of 1.5%, could take turns with rather disappointing December data. Let’s not forget that December was yet another month, strongly affected by the timing of vacation. Luckily, the year 2015 should be less sensitive to seasonal fluctuations. Looking ahead, the German economy should enjoy a pleasant tail wind, stemming from lower energy prices, the weaker euro and rock-bottom interest rates. Over the last twenty years, German exports to non-Eurozone countries have shown a rather unique correlation with exchange rate movements. Relatively immune against currency strengthening but strongly benefitting from currency weakening. Another boost for the German economy on the back of the ECB’s QE is one of the ironies of the Eurozone. The country with the most outspoken criticism could be the biggest beneficiary. Unless German ECB critics had in mind that a recovery on the back of an external stimulus package bears the risk of further self-complacency and a resistance to start new reforms. All in all, almost everything is put in place for another strong year of the German economy. At least in a little perfect and linear world. However, the aftermath of the Greek elections will show that perfect and linear worlds do not exist. As first German official reactions to the Greek election results this morning have shown, maybe the biggest challenge for at least German policymakers in the short run.