Germany: Stronger growth ahead

PMIs up, ZEW expectations up – and now the Ifo went up as well. The German economy looks set to pick up momentum.

With oil prices down to USD 50 per barrel and a much weaker EUR it really would have been a bad surprise if the Ifo index had fallen in January. As expected, it increased for the third time in a row and that qualifies for a confirmation of a trend reversal. Today’s increase was broad based, encompassing the assessment of the current situation and expectations and sector-wise both the manufacturing and the retail sector.

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Looking foward, the uncertainty around Greece could weigh on sentiment. That’s not our base case, however. We expect that negotiations between Greece and the Troika will end with a compromise (no Grexit, no formal haircut), but it could take a while.

With an export-to-GDP ratio of 47%, German exporters will clearly benefit from the weaker currency. The inflation rate will turn negative soon. This is not deflation but just a much lower energy bill. We pencil in GDP growth of 0.3% q/q in Q1 and 0.4% in Q3 and see the main risk is to the upside as we might underestimate the impact of the aforementioned factors.

The next data point to watch for the German economy is consumer sentiment on Wednesday morning. We expect an increase from an already high level.

 

Nordea