German Ifo business climate index falls sharply in January, economy likely to grow 1.2 pct in 2019

The German Ifo business climate dropped surprisingly in January. The index dropped sharply to 99.1 in the month from prior month’s 101. Consensus expectations were for 100.7. The fall is mainly because of the expectation component, which dropped sharply to 94.2. The fall in the Ifo business climate was stronger in the export-oriented manufacturing sector than in the service sector.

The business climate started the New Year on a weak footing. The Ifo is evidently pointing downwards and also the purchasing managers’ index for industry – not only in Germany, but also in most other industrial nations.

“When we nevertheless do not expect the German GDP to decline in the first quarter, this will be due to continued strong domestic demand (the Ifo business climate for the service sector is high) and special factors”, said Commerzbank in a research report.

Car production is expected to rebound from the emission test problems after carmakers had already received considerably more orders in the fourth quarter. Furthermore, after the end of the drought, the Rhine is again passable without any issues, so that industrial production in no longer hampered.

However, the all-clear can be given when the survey based leading indicators turn upwards again. But that depends greatly on China. This is because the Ifo business climate for export-dependent industry has collapsed in the last 12 months, mainly because demand growth from China has decelerated considerably. However, the Chinese government has put together a comprehensive economic stimulus package and is expected to follow suit in case of doubt. This should succeed in stimulating its economy.

“Then the German sentiment indicators will probably also recover from spring onwards. The German economy should be spared a recession. For 2019 as a whole, we continue to expect economic growth of 1.2 percent”, added Commerzbank.

At 11:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at -2.26871, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -36.3304 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex