Germany

Ifo business climate points to boom

What seemed hardly possible has come to pass: The ifo business climate for industry and trade in Germany, that reached a record in May, rose again in June. The assessment of the current situation and expectations improved slightly once again. The combination of an exceptionally healthy assessment of the current situation and upbeat expectations suggests that the German economy is increasingly heading for a boom.

Whereas the business climate in manufacturing broadly stagnated at a high level and slipped marginally in construction, wholesaling and retailing recorded marked improvements. This is a good sign that consumption has accelerated again in the second quarter of this year. In both the preceding quarters real private consumption edged up by only a meager 0.2% and 0.3% respectively. In the first quarter the household savings was at a seven-year high, creating leeway for stronger consumer demand over the rest of the year. Exports are also likely to provide a substantial boost in the second quarter.  All in all, we see quarterly growth in the German economy of 0.5-0.6% in the second quarter, pretty much on a par with Q1. Much suggests that the broad-based upswing will continue in the second half of the year.

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