Germany: Ifo took another hit in April - ING

Carsten Brzeski, Chief Economist at ING, notes that Germany’s most prominent leading indicator, the Ifo index, took another hit in April, adding to recent fears of an unexpected end of the German and Eurozone upswing.

Key Quotes

“On the back of continued trade tensions and probably some side effects of weak hard data, the Ifo dropped to 102.1, from 103.2 in March. While the weakening of the current assessment component was rather benign (to 105.7, from 106.5 in March), expectations continued their recent sharp fall, currently standing at the lowest level since mid-2016. The Ifo index has now dropped in four out of the last five months.”

“The absolute level of today’s Ifo index should be taken with a pinch of salt. The index also now includes services and has been rebased from 2005 to 2015. As a result, the entire series lies now almost 9 points lower than the old version. Nevertheless, today’s disappointing reading will feed the discussion on whether Germany and the entire Eurozone is currently only in a soft patch or actually at the start of an unexpected downswing.”

“In our view, any talk of a slowdown is premature. The main reasons for the disappointing start of the year in Germany are one-offs, like the harsh winter weather, vacation and high levels of sick leave due to the flu, combined with some sentiment normalisation.”

“All of this means that the German economy is currently in the middle of a difficult combination of negative one-offs, dropping optimism and strong fundamentals, the best preconditions for a rollercoaster ride with highly volatile soft and hard data in the coming weeks and months.”