Ifo signals that economy is bottoming out
The business climate in trade and industry clouded over slightly in March compared to February, but in effect it has been more or less flat since December. This signals that the economy is now bottoming out. It is certainly encouraging that business expectations have now risen three months in a row. As a leading indicator, these are of greater significance than the assessment of current business conditions which remains in the doldrums.
Despite the brighter prospects, the German economy is set to contract sharply in the first quarter of 2009. According to our own initial estimates, gross domestic product will shrink in the first quarter of this year by between 2 - 2½% on the previous quarter and by 5 - 5½% on a year earlier. However, in our view, extrapolation of this negative trend into the second quarter is not justified. For one thing, business expectations are now perking up. For another, the first quarter was adversely affected by extremely unfavorable weather conditions, pointing to a potential rebound, especially in the construction industry. Just as it proved wrong last year to expect the unusually good first quarter to continue throughout the rest of the year, it is also likely to prove incorrect to infer from the dreadful start to the year that the economy will continue to head sharply south in the coming quarters. We continue to expect the economy to turn the corner towards mid-year.
Dr. Rolf Schneider
Tel.: 49 / 69 / 2 63 – 5 77 90
e-mail: rolf.schneider@allianz.com
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