Euro area: IFO and M3 confirm ECB hike in April
- The Ifo current conditions has increased to its highest level in 20 years. We see no signs of any impact from the Japanese earthquake or the ongoing debt crisis.
- The German Ifo expectations index fell, but still remains at high levels, in line with our expectations of strong German growth.
- Going forward, we expect Ifo expectations to decline moderately. Our Ifo expectations model is clearly pointing downwards now.
- The annual growth rate of loans to the private sector increased and, more importantly, monthly loan flows to non-financial corporations remained high.
- The strong Ifo index and the monetary developments will give the ECB some support in its decision to hike rates in April.
Ifo current conditions at highest level in 20 years
The Ifo current conditions increased to 115.8 from 114.7 (consensus 114.6, Danske Bank 114.2). This is the highest level since January 1991 so no signs of any impact from the Japanese earthquake or the ongoing debt crisis here.
The German Ifo expectations index fell from 107.9 to 106.5 (consensus 106.9, Danske Bank 106.5), confirming that we have seen a peak, but still remaining at high levels, which are well attuned with our expectations of strong German growth. Expectations fell in all sectors, but most notably in construction.
Going forward, we expect Ifo expectations to decline moderately. Our Ifo expectations model is clearly pointing downwards now and the OECD leading indicator is much more downbeat and signals that we could see a more notable decline in Ifo expectations. We also assess that current conditions is very close to its peak.
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