News: EUR 2022-12-19 15:52

German Ifo index brings year-end optimism

Germany’s most prominent leading indicator, the Ifo index, staged a strong rebound, increasing to 88.6 in December, from 86.4 in November. The index is now back at a level last seen during the summer. Both the current assessment and the expectations components improved in December

New optimism still lacks solid fundamentals
At the end of what has once again been a challenging year for the German economy, hope has returned: hope that the economy might even avoid a winter recession or at least hope that it will only be a mild one. Indeed, implemented and announced government fiscal stimulus packages and the lockdown-related backlogs have prevented the economy from falling off a cliff. At the same time, however, the cold winter spell of the last days has shown how quickly filled national gas reserves and gas consumption reductions can disappear again. In the week ending 11 December, for example, gas consumption was only some 5% below the historical average, far away from the 20% reduction that is needed to get safely, and without energy supply disruptions, through the winter.

Looking ahead, the fact that the economy has avoided the worst does not automatically mean that the only way is up from here. On the contrary, the downsides still outweigh the upsides: new orders have dropped since February and inventories have started to increase again, a combination that never bodes well for future industrial production. Despite some relief in global supply chain frictions, early leading indicators from Taiwan and Korea point to a weakening of global trade in the winter. The next chapter of the pandemic in China will also weigh on trade and supply chains again. Finally, high energy prices are only gradually being passed through to consumers, a trend which will continue throughout 2023, therefore gradually weighing on private consumption.

Looking beyond the short term, the next question will be whether the economy can actually avoid a double dip in the winter of 2023/24. Currently, many official forecasts expect the German economy to return to average quarterly growth rates by mid-2023. We are more cautious and think that the series of structural changes and adjustments will keep the recovery subdued, with a high risk of a double dip.

For now, the winter of 2023/24 is still far away. Today’s Ifo index gives a strange feeling of hope and comfort at a time when none of the crisis drivers and fear factors have really disappeared. So the question is whether the risks and fears were overdone previously or whether we have all just got used to these risks and fears, which subjectively make these drivers look less risky. With just a few more days to go before Christmas, we wish that the current optimism is ultimately justified. However, it would not be the first time that in the midst of a structural crisis, early optimism proved to be premature.
Recent events
2023-01-25 14:03
News 426
German Ifo index improves again in January

Germany’s most prominent indicator has improved for the fourth month in a row, but the renewed optimism is still based...

2023-01-18 18:56
News 813
US production plunge adds to fears we could already be in recession

Coming on the back of the weakness in retail sales, the steep drop in industrial production and news of more job lay-off...

2023-01-18 18:54
News 810
Fed reaches the end game as US data disappoints yet again

Widespread falls in key retail sales components and broadening signs that inflation pressures are rapidly moderating mea...

2023-01-18 18:53
News 739
Bank of Japan defies market speculation; keeps policy steady

In keeping its key rate and yield curve control policy unchanged at today's meeting, the Bank of Japan probably wanted t...

2023-01-18 18:51
News 647
Jump in UK services inflation provides ammunition to BoE hawks

Headline inflation has peaked but pressure from the service sector continues to build. That's likely to tip the balance ...

2023-01-13 19:09
News 792
German economy still defies recession

The German economy grew by 1.9% in 2022. This implies a stagnating, not contracting, economy in the fourth quarter. Will...

2023-01-13 19:06
News 816
China’s export contraction means more infrastructure spending to support recovery

China's exports and imports continued to contract in December. This signals weak external demand which could hamper the ...

2023-01-09 14:37
News 975
German industry stagnates at too low level

Industrial activity in November provided more evidence that the economy did not fall off a cliff in the fourth quarter b...

2023-01-05 11:46
News 1466
German exports weaken further in November

Exports continue to weaken, suggesting that recession fears are real

German export weakness continues. Ge...

2023-01-04 22:51
News 1547
US jobs numbers could soon start to turn

Today’s data offers further further evidence that labour demand remains strong despite clear signs of a weakening econ...

2023-01-04 14:30
News 1534
German inflation drops to 8.6% in December

Lower oil and gasoline prices and the first phase of the government's gas price cap have pushed down headline inflation ...

2022-12-31 15:36
News 1741
BOJ considering raising inflation forecasts to near 2% target -Nikkei

The Bank of Japan (BOJ) is considering raising its inflation forecasts in January to show price growth close to its 2% t...

2022-12-30 12:04
News 851
South Korea: CPI inflation unchanged in December

Entering 2023, we expect headline CPI to head down to 4%. Gasoline prices and utility fees are set to rise meaningfully ...