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Enron Mail |
*** PDF version incl. charts is attached ***
German ifo business sentiment fails to recover Oct 2001 Actual UBSW fc Market Previous Headline index (1995=100) 84.7 86.0 85.0 85.0 Balance - total -26.2 -23.6 -18.7 -25.6 Balance - current conditions -27.0 -26.4 na -27.7 Balance - expectations -25.4 -20.7 na -23.5 n In contrast to our forecast, the ifo index of west German business confidence failed to recover from the shock level of September. The drop in the headline index of 0.3 points is not particularly worrisome. However, the further decline in business expectations suggests that production, investment and most likely employment plans have been slashed further at the beginning of Q4. n Although we continue to look for a stabilisation of the ifo index soon , today?s data suggest that GDP will contract in the current quarter, consistent with our forecast. They also cast doubts over the expected output recovery in the early months of 2002. The bad news in today?s ifo data is not the slight decline in the headline index. This alone would only have underpinned forecasts of industrial production and GDP decline in Q4 which is a consensus view anyway. The really bad news is the further fall in business expectations from what was considered to be an exaggeratedly weak post-attack shock level. It suggests that German companies are still far from concluding the ongoing process of adjustments in output, investment ad employment. Therefore, today?s further ifo decline not only underpins forecasts of two consecutive GDP declines in German in Q3 and Q4, but also challenges the widely held expectation of a recovery in industrial output early next year. Chart 1 suggests that the latest ifo pattern has increased the risk of a double dip in German production growth. Despite the bad news, however, we continue to believe that the ECB will not cut rates further this year, but prefer to wait until early 2002 with the next reduction in the refinance rate. _______________________________________________ Holger Fahrinkrug Senior Economist UBS Warburg AG Stephanstra?e 14-16, D-60313 Frankfurt, Germany Tel. +49 69 1369 8280 Fax +49 69 1369 8221 Email: holger.fahrinkrug@ubsw.com
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