Ifo German business sentiment index for April signals robust economic growth

The Ifo German Business Climate index rose in the month of April to 112.9 from 112.4 in March on a seasonally adjusted basis. The current conditions index rose significantly in April and was the eighth straight rise. It rose by the most since September to 121.1, like other recent business sentiment gauges such as the PMIs for the nation reached an almost six-year high, and a level rarely surpassed since reunification, noted Daiwa Capital Markets in a research report.

The outlook index dropped for the first time in three months in April, indicating a huge degree of caution, but the headline business climate index was the highest since July 2011. The rebound in current conditions was wide based, with producers being positive about prospects for future production. Retailers and wholesalers were also upbeat, while the business climate index for construction is increasing to a new series high.

“Given recent data and surveys, we think that German GDP in Q1 rose 0.6 percent Q/Q, the most for a year, and if these Ifo indices are anything to go by, a similar rate might well be in store for Q2 too”, stated Daiwa Capital Markets”.

The flash estimate of Germany inflation, which is due to come out of Thursday, is expected to rebound 0.4 percentage points to 1.9 percent year-on-year. Bundesbank President Weidmann is likely to lead the calls on the Governing Council for a change in the European Central Bank’s forward policy guidance, according to Daiwa Capital Markets.

However, most of the members including Draghi are expected to object and thus the policy statement might possibly confirm that the Governing Council continues to expect rates “to remain at present or lower levels for an extended period of time and well past the horizon of our net asset purchases”. However, this statement might be revised after the ECB updates its economic forecasts in June, added Daiwa Capital Markets.