Both the purchasing managers’ index and the Ifo business survey rose again strongly in July. The PMI for Germany reached its highest level for eleven months, business expectations in the Ifo survey the highest level for thirteen months. The evidence for an economic rebound could scarcely be clearer.

Sentiment in the Chinese economy perked up further in June, confirming our view that the worst is over. In the second quarter the economy is likely to have picked up steam again. However, we are not expecting a strong upswing.

Germany’s real gross domestic product (GDP) has taken a tumble unprecedented in the history of the Federal Republic. However, this is not fully in line with sentiment in the German economy. How come sentiment is not as bad as the slide in GDP would suggest?

Retail sales were down in April for the second straight month.  Following the solid gain in the first three months of this year, real consumption could merely be flat in the current quarter.

US gross domestic product has contracted once again by just over 6% at an annual rate. However, the worst of the adjustment phase should be over now, thanks not least to progress in inventory adjustment.

The three largest economies in East Asia – China, Japan, and Korea – are much more closely integrated and are much better prepared for the coming upswing than widely perceived in Europe.

According to the April Ifo test, business expectations have now improved for the fourth straight month. Even more surprising is the fact that the steep slide in the assessment of current business conditions has evidently come to a halt, with an increase of nearly one point. Experience shows that the assessment of business conditions tends to be more of a lagging indicator.

In Germany an ever steeper slide in the economy in 2009 is being promulgated from on high. As far as the economy was concerned, the year was dried and dusted and we should count ourselves lucky if things pick up again in 2010. Businesses and private households needed to be informed as they had not yet fully accepted that a crisis was in full swing. Although all forecasters concede that great uncertainty attaches to all predictions at present, this note of caution gets drowned out in the political discussion. For this reason a number of warnings should accompany current forecasts.

The renewed rate cut by the ECB is a welcome contribution to stabilizing the financial market situation. We do not share the criticism that the cut should have been larger. A larger reduction would have had little more impact on the economy and would have undercut expectations of any further rate cuts. Money market interest rate levels are no longer a curbing factor. It is important that adequate liquidity is on offer, also for longer maturities, which is the case. Moreover, the interest rate decision is appropriate in the current situation in which there are increasing glimmers of hope in the EMU economic data.

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.

The latest monetary policy decisions by the Fed have prompted hefty reactions in government bonds and on the foreign exchange markets. However, an accelerated slide in the US-dollar is not on the cards, nor will long-term government bond yields remain permanently at a very low level.

Following the very good start to the year retail sales did not suffer a nasty setback in February. This enhances the prospect that real consumption will not drag down growth again this quarter.

In February sentiment in the Chinese economy brightened up for the third straight time. While giving no cause for euphoria, the latest figures are fueling new hopes that the economic measures undertaken by the government are starting to bite and that the economic situation is gradually stabilizing.

While the business climate in industry deteriorated slightly in February, it has shown a surprising recovery in the services sector. Particularly encouraging is the fact that business expectations, deemed to be a reliable leading indicator, have now improved for the second time in succession in nearly all major sectors. In retail, the business climate has now moved up for the third time in a row.

The EMU economy took a severe knock in the fourth quarter of 2008. But the nadir should now have been reached, even if gross domestic product will probably shrink again in the first quarter. We are sticking to our forecast of -1.4% growth in 2009 and expect the ECB to lower key rates to 1.5% in March.

The 2.1% drop in overall output in Germany in Q4 2008 documents that Germany is in its severest recession in a long time. Since the second quarter of 2008 the economy has shrunk by 3.1%, the steepest fall in any recession since the foundation of the Federal Republic.

Retail sales rose in January for the first time in seven months. In spite ofthe difficult backdrop, there is a chance that real consumption might notdecline as strongly this quarter as it did in the second half of 2008.

January also saw a sharp drop in employment. For it to stabilize, overall demand needs to rebound. The labor market report underscores the necessity of a massive stimulus package.