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Economy in Brief

German IFO Survey Steps Back on Weaker Current and Expectations
by Robert Brusca  January 25, 2022

The effects of the latest whirlwind infection cycle from the Omicron virus continue to play out in topical economic releases globally. The latest is the German January IFO survey which finds weaker current and expectations survey values. The results are not dramatic in any way, nor do they change what has been the prevailing situation. On balance, the current situation rose just a little, but expectations (while still at a net negative reading) improve much more significantly month-to-month. For Germany, the climate reading has a firm/strong 79.9 percentile queue standing. The current index has a weak 32.2 percentile queue standing while expectations continue with a weak below-median 22.9 queue percentile standing.

In the climate section, all industries look firm, solid, or strong except one, services. Construction has an 87.7 queue percentile standing, manufacturing has an 81.0 standing, wholesaling has a 65.4 standing, and retail has a 57.3 standing. But at the bottom on this list, is services, the important jobs sector with a 17.4 percentile standing, well below its historic median (median occurs at a standing of 50) in the lower one-fifth of this historic que of observations.

Climate
For the most part strength in manufacturing and construction tend to buoy the overall readings. The manufacturing sector tends to get a large weight in the overall index while construction generally plays a lesser role. In the climate section, the role of the manufacturing and construction sectors is clear as the two sectors boost the overall mark to a standing that is higher than the relative standing of any other component (That is: 79.9>65.4; 79.9>57.3; 79.9>17.4).

Current conditions
The current index shows much the same results as climate but with much more weakness! The headline for the current index itself stands below its historic median at a queue ranking in its 32.2 percentile- in the lower on third of all its historic results. The sector rankings are roughly the same in the two panels for climate and current conditions. Construction has a 91.4 percentile standing with manufacturing at a solid and strong 81.7 percentile. Wholesaling is next at a strong 80.5 percentile standing. Retailing is at a 64.8 percentile standing. Once again, the weak one of the bunch is services with a queue percentile standing at its 16.3 percentile, well below its median and well into the lower one-fifth of all values it has taken on historically.

Expectations
Expectations pitch an even weaker view of the conditions that are expected to prevail ahead. The strongest two sectors again are manufacturing and construction, but in this sector they ‘lead' with much weaker standings at a 57.1 queue percentile for manufacturing and for construction a barely above median standing of 52.1. Next in line is the 27-percentile ranking of retailing followed by the 24-percentile ranking for wholesaling. Service in the expectations setting rank at a low19.5 percentile. As weak as expectations' readings are, they are pointing to relative improvement ahead. Expectations show the service sector is still struggling at very low levels and as weak as the current reading; the expectations standing is barely any better.

Month-to-month
The month-to-month changes show very little shift in the assessment of current conditions overall. Wholesaling and services backed-off, but manufacturing and construction stepped up a bit.

Learning from the report
Expectations improved significantly as services made an eight-point improvement month-to-month and retailing improved by even more. There were smaller improvements up and down the line in January as the participants apparently look for some catch up after a bad month with Omicron.

The road ahead
That is an admission that the virus still dominates events short term. There is more optimism that we are emerging from the fog of Covid since the Omicron variant - as transmissible as it is - is less punishing person by person. But it has done its damage not by being more dangerous to individuals but by being less dangerous but more pervasive. As immunity builds, this tendency could be damped. Pfizer tells us it is working on an Omicron-specific vaccine. Who knows if we will need such a thing? But time marches on and optimism is finally on an upswing despite past disappointments.

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