German business sentiment to soften on fears for Greece

The Ifo Business Climate Indicator may follow other indicators like the PMI and ZEW economic sentiment down this month. The Ifo has been among the most positiveindicators of German economic conditions of late and its continued rise in April came as something of a relief after falls in the PMI and ZEW headline indices. But note that the Ifo expectations component deteriorated in April, suggesting that falls in current conditions and the headline composite index may be to come. 

Indeed, there is some evidence that the Ifo has lagged a little behind the PMI in past cycles. And there are also more fundamental reasons to think that sentiment may have weakened in the past month. Not only has the Greek crisis intensified, but the euro exchange rate has reversed some of its decline, bond yields have risen and equity prices have fallen. 

"All in all, the BCI has been seen falling from April's 108.6 to about 107.5. This would leave it consistent with steady annual GDP growth of around 2% for now. But it could warn of an economic slowdown to come if the crisis is not quickly resolved" says Capital Economics.