German economic growth forecasts for 2016, 2017 likely to slide as leading indicators decline

Leading indicator for Germany continues to be in the negative territory and hence hints at a poorer economic environment for the economy than a year ago. This implies a further drop in Commerzbank's sentiment indicators that should lead to growth projections to decline further for Germany. This seems to confirm Commerzbank's growth projection of 1.3% for 2016, much below the consensus expectations.

The leading indicator has rebounded slightly from its slump in January but remains in negative territory at -0.02 points in February. The slight improvement is because of the expected additional loosening of monetary policy, which is why the real money market rate is currently much lower that it was in 2015. Meanwhile, the euro appreciated further. The tailwind from the FX market is hence easing significantly.

Moreover, the manufacturing PMIs in China, US and euro area without Germany, the proxies for global economy, have also dropped further. Therefore, the climate for German exporters has fallen again. As a result, this suggests that there will be a continuation of the latest downward tendency of sentiment indicators in coming months.

This is expected to be seen in weaker growth rates for Germany. While the overall conditions for the German economy improved in 2014 with strong depreciation of the euro, there are no indications of a similar rebound yet. With declining leading indicators, growth forecasts for 2016 and 2017 are also expected to fall further.

"Even with our below-consensus growth forecast of 1.3% for this year, the growth rates should be on the same level as in the second half of last year", says Commerzbank.