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Economy in Brief

Germany Digs Its Way Out
by Robert Brusca February 23, 2012

German IFO index echoed the progress registered earlier by the financial experts who contribute to the Zew index. The IFO index sees ongoing improvement in current conditions and in expectations.

The all sector diffusion index sits in the 87th percentile of its range, a relatively high standing that says all-sector readings higher than this occur less than 13% of the time. That is impressively strong, especially in a region that is having growth and political issues as is the Euro-Area. The IFO index is not quite as strong in its high low range standing as in its queue standing. In its high-low range it is in the 81st percentile. Still, all components of the IFO index are above their averages and usually by quite a lot.

The construction sector is showing its highest reading since 1991.

Wholesaling retail and services sectors are at or above the 90th percentiles of their respective queue standings. Manufacturing is the laggard sector in relative terms; its standing in the 72nd percentile of its queue and the 78th percentile of its high-low range are trailing similar metrics for other sectors. Taken together the current conditions index for the whole report is in the 92nd percentile of its range a very strong showing. Expectations sit only in the 62nd percentile of their range but that reading has been steadily rising and with the current performance so good the ability for expectations to continue to do better in the face of what is still a quite good current economy should be put in perspective and limited.

Business expectations deteriorated from December 2010 when the index reached a cycle-best reading of 17.4. That reading declined steadily until August of 2011 when, while still declining, it fell into negative territory. In October the trend move lower stopped as the negative vales in the reading began to diminish. In February 2012 we have our first positive reading on business expectations since June 2011.

Germany continues to be a part of the Euro-Area that acts like it is not a part of the Euro-Area. A good deal of the German resilience stems from its high degree of competitiveness within the Zone itself that keeps German exporters competitive even when the euro rises (up to a point, of course). Germany has run such a consistently low rate of inflation that it is highly competitive within the zone; it has an advantage of as much as 30% on original Euro-Area members compared to their starting relationship in the common currency area. This goes a long way toward explaining the resiliency of the German economy. It also explains why it is not a bellwether for the rest of the Zone.

Summary of IFO Sector Diffusion readings: Climate
Climate Current Last Mo Since June 1991* Standings
  Feb
12
Jan
12
Avg Median Max Min Range %Range Queue or
Rank
All Sectors 11.6 9.1 -5.8 -6.9 22.2 -36.5 58.7 81.9% 87.9%
MFG 14.3 13.4 2.0 4.2 29.9 -43.6 73.5 78.8% 72.3%
Construction 3.3 -3.6 -28.6 -29.2 3.3 -49.2 52.5 100.0% 99.6%
Wholesale 14.9 10.5 -10.5 -13.5 26.9 -39.1 66.0 81.8% 90.9%
Retail 3.6 -0.5 -15.5 -16.0 23.5 -41.7 65.2 69.5% 92.2%
Services 24.9 22.3 10.6 9.9 33.0 -15.7 48.7 83.4% 90.6%
Curr cond. : All 22.8 20.6 -5.9 -9.1 33.7 -38.9 72.6 85.0% 92.9%
Expectation : All 1.0 -1.8 -2.8 -1.4 17.4 -45.5 62.9 73.9% 62.7%
* June 2001 for Services
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