Signs are increasing that the German economy has reached a turning point. In December Germany’s ifo business climate index rose for the second consecutive month to 96.3 points, up from 95.1 in the previous month. This was the indicator’s largest gain since August 2018. The favorable development was largely driven by a marked improvement in the expectations indicator (+1.5) but the current conditions indicator rose too (+0.8). Looking at the major economic branches, services oozed resilience by rebounding to a six-month high. Manufacturing meanwhile registered a small uptick thanks to brighter expectations whereas the current conditions index continued its decline. The construction indicator in contrast pointed towards a further cooling of momentum. While the comeback in the ifo survey suggests that the worst is behind for the German economy, we don’t see a swift growth rebound in the cards. In view of the cautious outlook for global trade and the car industry and lingering elevated political uncertainty, mini GDP growth rates at best can be expected in the coming quarters. For both 2019 and 2020, we expect GDP growth of only +0.6% for Germany, and therefore about half the rate as for the Eurozone as a whole.
