Danske Research Team
Danske Bank A/S
German IFO expectations index declined again in June as it went down to 104.8 from 106.2 and is now around the level it was in autumn 2013. The current assessment indication was unchanged at 114.8 and did not increase as we had expected. Nevertheless, there are signs that German domestic demand is doing well.
The decline in the IFO expectations index in June mainly followed as the manufacturing index declined around 2 index points. On the other hand, the retail trade index was close to 1 index point higher in June compared with May. The decline in the manufacturing component should be due to the lagged impact of the global slowdown, whereas the higher retail trade reflects that German consumers have been less negatively affected.
Looking ahead, the OECD’s leading indicator suggests IFO expectations could decline further. However, the negative impact from the global weakness should slowly start to fade and support domestic demand. The weaker euro will also support economic activity later. In line with that, German PMI manufacturing increased marginally in June while the new export orders component declined at a slower pace.
Although the IFO expectations index has trended down since January it still suggests increasing industrial production and GDP growth around 1% q/q. Overall, we expect strong German activity in 2014 even though GDP growth could be a bit weaker in Q2 as the global weakness in Q1 is set to have a lagged impact.
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