German Ifo surprises in March

It’s hard to comment on economic sentiment indicators, while watching horrible scenes from my former home city. What initially was supposed to be a German economic sentiment day, with releases of the three most prominent confidence indicators on one day, has all of a sudden and tragically become a sad day for Europe. Still, let’s give it a try to return to economics for a minute. Germany’s most prominent indicator, the just released Ifo index, rebounded in March to 106.7, from 105.7 in February. Both, the current assessment and the expectations component increased in March; showing that German businesses seem to have shaken off fears of long-lasting global slowdown. While commentators are currently heatedly discussing the risks of a wide-spread global slowdown, the German economy shows solid resistance. While soft indicators have disappointed in recent months, hard data have rebounded at the start of the year. Actually, hard data – except for exports - in January has actually surprised to the upside and industrial production, construction, car registrations and retail sales were actually higher than in the final quarter of 2015. At the same time, the continued strength of the service sector seems to make up for a more structural slowdown in industrial production in the wake of weaker demand from too many important export destinations. Today’s Ifo index adds to increased optimism. The Ifo was the second German sentiment indicator released today. Earlier this morning, the PMI remained unchanged at 54.1, pointing to continued growth in the first quarter. At 11am CET, the ZEW will close this German sentiment day, shedding some first light on how investors assess the ECB’s latest monetary policy action and whether or not they still believe in Mario Draghi’s magic. On any ordinary day, today’s German sentiment data would have been a reason for moderate optimism. Despite ongoing warnings and fears of a derailing of the global economy, the Eurozone’s largest economy is still going strongly. However, this is definitely and sadly not an ordinary day anymore.