Ifo index rises in December, driven by expectations. Manufacturing sector less gloomy, retail and construction okay. The fall in oil prices supports domestic demand. The Russian crisis is a burden, but the economic impact seems manageable.
The unchanged assessment of the current situation in the Ifo survey (see table) points towards slow growth during the current quarter. We pencil in GDP growth of 0.1% q/q for Q4, but 0.3% q/q for Q1. The increase in the Ifo expectations supports this view. Manufacturers’ expectations seem to be on a rising trend now – despite the cold wind blowing in from the East.
Due to the fall in demand from Russia, the share of German exports to Russia in total exports is now below 3%. German and other countries’ exports to Russia will probably dive going forward. But on the other hand, the fall in energy prices will support demand in countries like the France and the US which are export destinations no. one and two for Germany; Russia is no. 11.
It may seem somewhat disappointing that the business climate didn’t rise in the retail and in the construction sector. However, both indices are clearly above the long-term average, and fundamentals are sound. For his standards, the German consumer is shopping quite a lot. Domestic demand will be the main driver of growth also next year.
Nordea