FXStreet (Delhi) – Carsten Brzeski, Chief Economist at ING, suggests that low oil prices and increased external risks had finally hit German business sentiment.
Key Quotes
“It looks as though global events have finally reached German companies’ boardrooms. At least this is one conclusion of yesterday’s Ifo reading. Germany’s most prominent leading indicator, the just released Ifo index, dropped to 107.3 in January, from 108.6 in December; the lowest reading since February 2015.
In particular, expectations have taken a hit from recent market turmoil and probably renewed concerns about a slowing of the Chinese economy, dropping to 102.4 in January, from 104.6 in December. The only marginal drop of the current assessment component (to 112.5, from 112.8), however, indicates that the positive growth momentum is currently still there.
Even if the Ifo index recently has lost some of its predictive power for GDP growth, the current assessment component still has the best track record in nowcasting real economic activity. Therefore, there is no need to get overly concerned about German growth, yet.
All in all, yesterday’s Ifo index is clearly not bad enough to kick-start a new economic debate. The refugees and the political reactions will remain topic number one in the coming weeks. However, yesterday’s Ifo index also shows that a scenario which dominated financial markets over the last weeks has finally entered German companies’ boardrooms: it’s the scenario in which extremely low oil prices could do more harm than good.”
(Market News Provided by FXstreet)