German new Ifo business climate index falls markedly in April, economic growth likely slowed in Q1

German new Ifo business climate dropped markedly again in April, coming in below consensus expectations. The business climate index dropped to 102.1 from 103.3, as compared with consensus expectations of 102.8. The data published today refer to the new Ifo business climate for the country, which unlike the previous business climate for industry and trade, takes service sector into account with a weight of more than 50 percent and refers to the new base year 2015, noted Commerzbank in a research report.

This is the fifth straight month where the Ifo business climate index dropped. Around half of the fall was owing to the assessment of the current situation index that dropped to 105.7 and to the business expectations index that fell to 98.7.

The Ifo business climate, like the PMI for the manufacturing sector, is hinting at a deceleration as the corresponding seven-month averages, which in the past have reduced the possibility of false signals to below 10 percent, are declining. The trade dispute, the end of the house price boom in China and the strengthening of euro’s external value by 7 percent in the past 12 months imply that the German economy will show slightly less momentum form now, stated Commerzbank.

Such soft patches in economic upturns are common. Since the early 1970s, that have lasted on average four quarters and have been accompanied by a 1.5 percentage point fall in year-on-year rate of economic growth.

“At 1.6 percent, we therefore expect weaker growth in the coming year than for 2018 (2.3 percent)”, said Commerzbank.

The falling momentum should already become apparent in the March quarter, for which the economy is expected to have expanded just 0.4 percent sequentially. Meanwhile, euro area economic growth is expected to have decelerated as well to 0.4 percent in the March quarter, added Commerzbank.

At 16:00 GMT the FxWirePro's Hourly Strength Index of Euro was bullish at 82.1845, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bullish at 61.2231. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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