Focus Germany: Recession risk has receded – 2012 GDP forecast now 0.5%
The ifo business climate index has now risen for the fourth time in a row and in February the PMI also remained just above the 50 threshold at 50.2 despite declining. Nevertheless, the improvement in the confidence indicators was not reflected to the same degree in monthly hard data, such as orders or retail sales. Only industrial production provided a positive surprise in January, with favourable weather having also played a part. It is unlikely that the latest increase in oil prices to more than USD 125 per barrel (Brent) will correct rapidly, which will be an additional burden on the global economy. The model simulations described show that a further increase to USD 135 (annual average) would reduce German growth by about 1/4 of a percentage point. Overall, economic growth in H1 is likely to remain very modest. However, the risk of GDP declining again in Q1 after contracting 0.2% in the closing quarter of last year looks to have receded further. Even with a quarterly rate of only 0.2% in Q2 this means an annualised average increase in GDP of about 1/2%. Average collective wages will accelerate slightly in 2012, but the increase should not be significantly above 3%.