Capital Economics:German Ifo survey underlines case for more stimulus: September’s Ifo survey brought further worrying signs that that the recovery in the German economy is grinding to a halt. The fall in the overall business climate indicator (BCI) from August’s 106.3 to 104.7 was the fifth drop in a row and left the index at its lowest level since April 2013. At this level, the index has historically been consistent with annual rates of GDP growth of less than 1%, a far cry from the 3% the survey was signalling back in the spring.
September’s drop was driven by falls in both the current assessment and expectations indices, with the latter falling to its lowest level since December 2012. The ECB’s rate cuts at the start of the month therefore don’t appear to have improved sentiment. All of the main industry sectors saw falls, with the drop in the retail index from -0.7 to -2.1 underlining the softness of the consumer outlook.
The weakness of the survey clearly adds to the pressure on the ECB to take more decisive action in the form of full-blown quantitative easing. But it also supports recent calls for the German government to provide more support to the economy by loosening the fiscal reins and increasing its spending. For now, though, there are few signs that it is about to respond to those calls.
Too early to tell how the Yen will react imo… I think most people believe continuation of Abenomics/QE is a “sure thing” and don’t pay too much attention to the political climate… however, mark my words, if there is a united front against the LDP and the BOJ leadership on this issue, and if this united front is able to get the population and SME’s, business leaders on their side on this issue (it’s happening), then LDP strategists, in the name of political harmony, will push for concessions. If you consider the last 10 years of Japanese politics… 9 prime ministers in 10 years… what we have right now is a period of calm but that could change very quickly. Worth monitoring imo.