Current Assessment: 112.9, forecast 112.5, pr. 112.3 (Nov)
Expectations: 106.9, forecast 106.0, pr. 106.3 (Nov)
Today’s report was better than expected and is a record high. It continues to show the optimism around the German economy, but also the divergence in the Euro-zone. The German economy is leaping forward while Euro-zone periphery countries are struggling with stagnant economies and cut backs in government spending.
The chart below shows that Germany has had a strong V-shaped recovery following the Great Recession, but it’s tied to the Euro, so while it underpins economic growth for the region, the currency remains at the mercy of the sovereign debt crisis.
The EUR/USD was higher following the business confidence release, which offset the negative impact of a five-notch downgrade to Ireland’s credit rating. However, after the pair hit the 1.3350 area it topped off and reversed a good chunk of its previous gains, falling back down to 1.3270. That continues the rather choppy trading that has characterized this week.
From the Release: “The Ifo Business Climate for industry and trade in Germany has shown renewed improvement in December from an already high level. In the course of the entire year 2010, the business climate index has risen sharply. Following an increase in exports, especially investments have been responsible for the upswing, and the outlook is now even good for consumption.
In manufacturing the business climate index has fallen somewhat, but this is solely the result of a slight worsening in the business expectations. The business situation is just as good as in November. Stronger stimulus is expected from exports, and the firms are planning to hire additional staff.”
Here’s the indicator’s past 5 year history:
GER IFO Business Climate Index
http://www.fxtimes.com/
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