Ifo German business climate index likely to have dropped marginally in January

Ifo German business climate index is expected to have stabilized in January. According to a Societe Generale research report, the index is likely to have slightly dropped to 110.5 in January from 111 in December. Other business surveys have come out mixed in recent times, while the Ifo stands out for being at an exceptionally high level as compared with the historical data.

The recent GDP data for last year affirmed that Germany’s economic growth accelerated to about 0.6 percent sequentially in the fourth quarter of 2016. It is expected to moderate slightly at the beginning of this year. But, given that the labor market is on fire and with easing financial conditions and looming elections, surprises on the upside cannot be excluded, noted Societe Generale.

The upcoming wage rounds would be significant, with initial bids from the trade unions indicating to high demands between 4.5 percent and 6 percent. While initial demands of this order are not totally unusual in the German wage process, it is quite rate that the eventual wage deals was able to exceed 3 percent. 2017 might be a different year mainly because of the exceptionally solid labor market and accelerating inflation. Time might therefore have come for wage growth in Germany to begin pushing Germ and euro area inflation sustainably higher, added Societe Generale.