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Economy in Brief

IFO Index Drops
by Robert Brusca December 18, 2008

The IFO index fell to 82.6 in December from 85.8 in November. The current situation index fell to 88.8 in Dec. from 94.9 in Nov. Business expectations decreased to 76.8 from 77.6. The IFO index is much weaker in 2008 than it was in 2001. But the EU sentiment index is only about as week in 2008 as it was in 2001.

The all –sector reading of the IFO is weaker than any individual sector in terms of its position in its range. That result is a testament to how this crisis is leaving no sector untouched. Construction is the best relative performing sector as it stands in the 39th percentile of its range. This is mostly because construction has remained weak in recovery. The next strongest sector is wholesaling at a -21.8 net reading. At that it stands in the bottom quarter of its range. The service sector, the most stable of them all, registers a raw net reading of -7.3 but that resides in the bottom 18 percentile of its range. Retailing and MFG are in, roughly, the bottom 10 percent of their respective ranges, since early 1991.

The IFO is showing great weakness and the detailed readings (not yet available) for December have been showing more weakness in the important export sector. The IMF is urging Germany to do more to stimulate its economy. The German economics ministry is cutting its own outlook for growth. It said: "The outlook for the economic development has deteriorated further. The weakening of the world economy will be stronger than previously assumed. At the same time, the situation on international financial markets is still severely strained," the German economics ministry continued in its December monthly report to discuss the outlook. "The outlook for the export-driven German economy is gloomier." It said economic indicators are signaling that that the contraction of real gross domestic product, which was down 0.5% in the third quarter, has probably continued at a faster pace and there is no sign of any change in the weakening trend.” This of course is exactly the message from the day’s IFO report, too.

Summary of IFO Sector Diffusion readings: CLIMATE
CLIMATE Sum Current Last Mo Since Jan 1991*
  Nov-08 Oct-08 average Median Max Min range % range
All Sectors -29.0 -20.2 -7.7 -8.4 16.9 -30.9 47.8 4.0%
MFG -29.6 -18.9 -0.2 1.6 27.0 -35.9 62.9 10.0%
Construction -30.2 -27.7 -28.2 -30.3 1.3 -50.5 51.8 39.2%
Wholesale -21.8 -15.1 -13.2 -15.7 23.6 -39.3 62.9 27.8%
Retail -33.5 -25.1 -14.2 -14.5 28.7 -39.7 68.4 9.1%
Services -7.3 -4.3 11.0 9.5 28.5 -15.2 43.7 18.1%
* June 2001 for Services
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