The IFO index was lower in April. Its level was 104.4 versus 106.7 in March and a local peak at 107.4 in February. April index is below the first quarter average was 106.1 but above the IFO historical average (100.9). There is no downside break but the momentum is weaker with uncertainties for the near future.
On the first chart the IFO new trend is consistent with the ZEW and PMI lines. Both have recently changed direction; in March for the PMI and in April for the ZEW.
We can imagine that the improvement seen at the end of last year was consistent with what was seen in Asia. As it is mentioned on this blog there was a better outlook in China since last fall and a contagion to other Asian countries. The first April survey in China has shown a weaker picture and that’s probably one reason of the new trend seen in Germany.
On the second chart expectations for sectorial sector indices are shown. The recent improvement came from construction and manufacturing. For both sectors the trend has reversed. As I did not understand the construction upside profile I’m not surprise by its new trend. On manufacturing the issue is probably related to Asia as I mentioned it above.
Concerning the current situation index (third chart) figures are usually lower but the width of change is limited compared to expectations.
IFO index reflects a lower level of activity. We have to be attentive to the manufacturing sector as it is an important engine for German growth and as it gives informations on the global economy.
The risk of recession is still low but the ECB could reduce this risk at its next meeting by lowering interest rates and having a message saying that monetary policy will remain accommodative for a long time period in order to change investors and companies’ expectations.
Chart 1 IFO, ZEW and PMI Composite Indices
Chart 2 – Expectations
Chart 3 Current Conditions