German IFO: What slowdown?

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German business confidence improved strongly in July, taking economists by surprise. The business expectations, current situation and business climate indices are all approaching the highs last seen at the start of 2007. The improvement was broad based except for the construction industry. Of particular interest is that business sentiment in the retailing industry has turned positive for the first time since February 2008 while sentiment in the wholesale industry has improved markedly.

Sources: Dismal Scientist; Plexus Asset Management.

The significant improvement in the euro zone’s largest economy is sure to rub off on the entire economic region. The IFO Business Expectations Index leads the GDP-weighted PMI (manufacturing and services) of the euro zone by approximately one month. The strong Business Expectations Index number for July therefore suggests that the GDP-weighted PMI in August should be strong as well – on top of that of the flash estimates for July that surprised analysts and commentators on the upside.

Sources: Dismal Scientist; Plexus; Markit.

The numbers should continue to be supportive of European equity prices.

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