German IFO Business Survey Climbs To Fresh Records

Germany (i.e., Europe) sure is milking the one-time destruction of its currency this past year for as long as it can. To wit: the just released IFO Business Survey in January continues to reach to all time highs, on the back of a one-time export renaissance. Of course, now that the euro is so tremendously volatile, and little in terms of trade effect can be projected based on daily 200+ bps gyrations in the currency, expect confidence to continue to surge until, just like a high beta stock, it plunges upon the realization that it is time to kill the euro once again, and resume the "Greece is getting expelled any day now" rumors.

From Goldman Sachs:

    * The Ifo index defied our expectations of a minor easing, and pushed higher in January to another record high reading of 110.3.
    * The assessment of current conditions was broadly stable at 112.8, while business expectations increased to 107.8 after 106.8.

The Ifo was already at record highs in December, so this month's gain comes as yet another welcome surprise. The continuing improvement in the forward-looking expectations component also suggests that this momentum should not be letting up anytime soon. The sectoral breakdown of the current conditions index was more mixed, however, as sentiment in the wholesale and retail trade sectors suffered a modest setback (likely due to the bad weather over the past month), while manufacturing and construction sentiment continued to improve.

As we have previously emphasized, these record high headline index levels must be kept in perspective -- the index fell precipitously during the course of the recession and with the V-shaped rebound that has followed, it is natural for there to be some overshooting before the index settles back to some longer-term average. While this makes it difficult to translate the monthly numbers into some implicit GDP growth rate, as far as momentum goes, it seems that there has been no let down at the beginning of 2011, and that the economy is on track to record another strong expansion in Q1.



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