Friday, December 18, 2009


German business confidence increased for the ninth consecutive month in December, reaching a 16-months high. The German Ifo index increased to 94.7 in December, from 93.9 in November. Both the expectations component and the current assessment component improved. The expectations component is now at its highest level since January 2008, while the current assessment is also catching up, reaching a 12-months high. The expectation gap is closing slowly, indicating that fears of a double-dip scenario as in 2002 and 2003 should have been exaggerated.

Obviously, the German industry is bouncing back. Some sectors already have already outweighed half of the crisis-related losses. As usual during the first stage of the recovery, the chemical sector and, due to the car scrap scheme, the automobile industry have been leading recovery. Mechanical engineering and electronics are still lagging behind and have just turned around. Or putting it more positively: have still a lot of upward potential.

Today's good Ifo reading completes a positive end to a horrible year. Confidence indicators have rebound with a nice v-shape since the beginning of the year. Of course, the real economy is still lagging but our favourite three-months average of the Ifo predicts good news for industrial production in the months ahead. Structural elements of the government's stimulus package like infrastructure projects will still have to unfold their full impact next year. Furthermore, exports will continue to be a main growth driver as the global recovery gathers speed and even the German consumer should not be abdicated completely. Of course, this will not be enough to undo the crisis immediately. Low capacity utilisation and increasing unemployment will remain a painful reminder of the severity of the crisis. Nevertheless, all ingredients are there to make 2010 a year to look forward to.

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