Treading water. Germany’s most prominent indicator, the Ifo index, remained almost stable in April at 106.6, from 106.7 in March. While the current assessment dropped to 113.2, from 113.6, expectations increased.
Today’s Ifo adds to latest hopes that the widely-feared sharp global slowdown is not happening. At least the German economy shows solid resistance. Nevertheless, under the surface of solid hard data, a more worrying picture is emerging. The manufacturing sector and exports are still struggling to gain momentum. The economy is no longer driven by the old success formula but by new factors: consumption, construction and services, though it remains to be seen whether this formula is really a formula for sustainable success. The experiences in many peripheral Eurozone countries tell a different story.
While the economy is still running smoothly, economic issues together with the refugee crisis could become the decisive topics at next year’s national elections. Even though these elections are still far away, German politicians are already strategically taking positions. The latest attack on the ECB by finance minister Schäuble is such an example, as - in our view – it was a clear first step in the election race to secure an important share of the German electorate: savers and pensioners. Another topic that hopefully will get more attention in the run-up to the elections is the lack of new structural reforms. Last week, the OECD released a report, which showed that German taxes on labour were the third highest in Europe . Corporate taxes are also well above the European average. When talking about possible fiscal stimulus, Germany does not necessarily need more demand-side stimulus but could instead make use the fiscal room to reduce taxes and insert supply-side stimulus.
All in all, today’s Ifo index suggests that German businesses have shaken off fears of long-lasting global slowdown but real deep-seated optimism remains elusive.