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Economy in Brief

Germany’s IFO Index Turns Up…Again
by Robert Brusca March 26, 2008

The IFO headline index rose to 104.08 in March from 103.1 in February. This rise marks the third straight increase from a low of 103 in December 2007. It comes at a time that the euro is moving relentlessly higher and policymakers are complaining about that. The quick rebound in the IFO index and apparent health it signals sires questions about the rest of Europe.

Germany’s current situation is improving for the second month in a row with the index up to 111.5 from 110.3 in February. Expectations also notched higher, rising for the second time in four months. Expectations are having a bit of a harder time of it. The expectations index edged higher to 98.4 in March from 98.2 in February

Germany’s sectors look fairy solid as the IFO diffusion gauges show in the table below. Construction is the weakest sector and it is in the 56th percentile of its range of values since 1991. Manufacturing is still the strongest sector in the 84th percentile of its range and services are strong in the 83rd percentile of their range. Wholesaling and retailing are in the mid 75th or so percentile of their respective ranges. This leaves Germany’s overall sector index in the 83rd percentile, hardly a weak showing.

If Germany is this resilient, is the rest of EMU going to have more trouble? A strong Germany will tend to the keep the ECB tighter longer. But Italian data have been decidedly weak with orders fading and both consumer and business morale measures from ISAE on very weak trends. EMU countries share a common currency but national inflation rates have been quite different across EMU member countries ever since the currency union was formed; it may be that competitiveness levels in the EMUe are not on level playing field. That could cause a real policy-making dilemma and worse political trouble within the union.

Summary of IFO Sector Diffusion readings: CLIMATE
  Current Last Month Since Jan 1991*
  Mar-08 Feb-08 Average Median Max Min range % range
All Sectors 8.7 7.3 -8.7 -9.5 16.7 -30.7 47.4 83.1%
MFG 17.9 16.3 -0.6 0.2 27.4 -35.6 63.0 84.9%
Construction -21.8 -24.9 -30.0 -32.2 0.1 -50.5 50.6 56.7%
Wholesale 7.8 5.8 -14.8 -16.5 23.4 -39.5 62.9 75.2%
Retail -0.9 1.3 -15.9 -15.0 11.3 -39.7 51.0 76.1%
Services 21.0 21.0 9.5 8.9 28.5 -15.7 44.2 83.0%
*May 2001 for Services          
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