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    German confidence data points to weak start to the year

    The Ifo business sentiment survey in Germany pointed to weakened growth at the start of 2016 as all three indicators of the survey declined in January.

    The Ifo business climate index dropped to 107.3 from a downwardly revised 108.6 in December and fell short of expectations of 108.4. The current conditions index, fell marginally to 112.5 from 112.8 and was below forecasts that it would stay unchanged. Meanwhile, the Ifo expectations index, which measures the outlook for the future, also headed lower to decline to 102.4 in January from a downwardly revised 104.6 the prior month. Estimates were for the index to fall to 104.1.

    The manufacturing sector saw business sentiment decline to a one-year low as the outlook for exports deteriorated. The slowdown in China and in other emerging market economies has weakened the demand for German produced goods. However, current business conditions remained strong in January, with capacity utilization rising by 0.6 to 85.1%.

    The services sector also saw a worsening in both the current situation and future expectations, while the construction and wholesale sectors were mixed. Current conditions in the construction sector improved in January but the outlook deteriorated sharply. It was a similar trend for wholesalers, but retailers were more optimistic for the future despite a drop in current conditions. This could be an indication that domestic demand is expected to remain resilient as ultra-loose monetary policy by the ECB cushions the Eurozone economy from the downside risks.

    Today’s survey follows Friday’s worse-than-expected PMI readings, which also showed activity weakening in January. Both the manufacturing and services PMI came in below expectations and were down on the month on signs that the slowdown in global trade is finally starting to impact the German economy, which until now had largely shrugged off the negative developments in the world economy.

    The euro fell back slightly after the disappointing data, having climbed to session-highs before the release. It was down at 1.0818 dollars in mid-European session, having peaked at 1.0835 earlier in the day. Against the pound, the single currency was just off the 0.76 level but was struggling to stay above 128 yen against the Japanese currency after dropping from an earlier high of 128.48 yen.

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