Germany: More optimism - ING

Carsten Brzeski, the Chief Economist and Global Head of Macro for ING Research, suggests that optimism in Germany is back as the Ifo index continues to surge on the back of significantly improved expectations.

"Germany’s most prominent leading indicator has just staged another strong comeback. The Ifo index increased to 86.2 in June, from 79.5 in May." 

"Particularly expectations surged, while the current assessment component was still muted. Expectations increased to 91.4, from 80.1 in May, and have almost returned to their February level."

"At 81.3, from 78.9 in May, the current assessment component is still far below levels seen at the start of the year, when it was close to 100."

"The problem with soft indicators these days is that they give a good impression of the relative change but should be taken with a huge pinch of salt when it comes to their predictive power of actual GDP growth outcomes."

"Still, today’s Ifo index echoes more real-time signals that economic and social activity has started to pick up significantly since the first lifting of the lockdown measures in late April. Some sectors have seen activity returning to up to 90% of January/February levels. However, it is currently still impossible to measure the more permanent damage the crisis has caused and what its impact will be on future growth."

"Looking ahead, higher unemployment, insolvencies and weak external demand are likely to put a cap on the pace of the recovery once the technical v-shaped rebound is behind us. In this regards, the government’s latest fiscal stimulus should help, not only to support domestic demand but also to accelerate the necessary structural change of the economy."

"In the shorter run, the main risk for the German economy seems to be a second virus wave, together with the prospects of a second lockdown."