Boldly going where no Ifo has gone before. German business confidence surprised and continued its impressive performance of the last two years, increasing to a new record high. In January, the headline Ifo index increased to a smashing 110.3, from 109.9. While the current assessment weakened somewhat, expectations also hit a new record high.
The heaviest snowfalls in more than 40 years only weighed on companies’ current assessment but not on their optimism. Even if the strong weather winter was to return in the coming months, it would only delay but not stop economic growth. German fundamentals are currently simply too strong to derail the recovery any time soon. The diversified export mix, the labour market and a further strengthening of private consumption should put growth in 2011 on a broad footing. Moreover, Investment plans are back at their 2008-levels when the crisis stopped the recovery from broadening. Now, with interest rates at record-low levels and low credit hurdles (at least according to the latest Ifo surveys), the investment upswing should finally materialise.
Today’s Ifo sends a strong signal that the German economy will continue to power ahead. With a positive interplay between more investment and further job growth, the conditions to initiate a virtuous circle have hardly been better in the last fifteen years.