Germany: Survey divergence clouds growth signals – Deutsche Bank

Deutsche Bank Research economists Robin Winkler and Marc Schattenberg analyse conflicting German business surveys, noting that PMI points to a cyclical expansion while Ifo expectations still imply weakness. They find Ifo’s historical lead over PMI is mainly in manufacturing. Focusing on survey changes, both indicators now suggest Q1 German GDP growth of 0.4% q/q.

PMI and Ifo send mixed growth signals

"Recent business surveys point to a decent recovery in the German economy. However, the PMI survey continues to paint a much rosier picture than the Ifo survey. While the PMI is now back at its long-term average, consistent with a cyclical expansion, Ifo business expectations suggest the German economy remains deep in the doldrums."

"A simple nowcasting model in levels puts Q1 GDP growth at 0.2% on the PMI versus -0.7% on the Ifo. This large gap between the two surveys is more than just noise; it first opened up in 2022 and has persisted ever since. So, which survey is right?"

"Historically, Ifo business expectations have tended to lead the PMI. If one could track only one survey, the Ifo would have been more informative. However, this leading property largely stems from the manufacturing sector."

"The upshot is that, more than ever, the index levels of the business surveys should be ignored in favour of the rates of change. Even then the predictive power of the surveys has declined since 2020, perhaps because the national accounts data has become more erratic. But at least both surveys add some useful and consistent information to near-term forecasts. Looking at recent changes, the fresh data for February point to Q1 GDP growth of 0.4% q/q on each of the two surveys."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)