18/2/16: Lack of Support for 'Refugees --> Growth' Link in German Survey

As a separate matter, the same survey of 'some 220' German economists by CESIfo found that...

"A relative majority (40 percent) of participants expects the asylum-seekers to have a negative impact on the country. Only 23 percent see them as benefitting the country. The remainder was undecided. The majority of German economics professors therefore do not share the optimism of the Deutsche Bank’s Chief Economist, David Folkerts-Landau. He described the flood of refugees as Germany’s biggest economic opportunity since its reunification.

The majority of economics professors (56 percent) believes that the minimum wage should be lowered to facilitate the integration of asylum-seekers with poor skills into the German labour market. 37 percent, however, does not support this view. Some economists feel that this could lead to tensions between Germans and new arrivals. “I am no advocate of the minimum wage,” writes Prof. Dr. Erwin Amann of the University of Duisburg-Essen in the survey. “But a reduction in the minimum wage would prompt a debate over German workers being crowded out,” he warns."

So much for that "Keynesian growth stimulus" from immigration, then...

18/2/16: Europe's Problem is Not Germany...

CES-Ifo just released their survey results for the regular poll of some 220 German economists. And if you think that professionals are at any odds with Schäuble on monetary policy of the ECB, think again.

Which, of course, is absolutely correct. For German economy, ECB's policy is too loose. For French economy, about right. For Italy and Spain - probably somewhat too restrictive, although who on Earth can tell with any degree of confidence what 'about right' policy for these two can even look like...

Still, the key point remains: Euro is still a malfunctioning currency that cannot reconcile differences between various economies. In other words, Europe's problem is not Germany. It is not France, nor Spain, nor Italy. Europe's problem is not even Euro. Instead, Europe's problem is Europe.

9/11/15: Lessons from German reunification for a European Fiscal Union: Sinn

CESIfo's Hans-Werner Sinn has just torn a massive hole in the parasail of European 'federalistas' of French 'harmonise-everything' variety. His summarised view is presented here: http://www.voxeu.org/article/german-reunification-lessons-european-fiscal-union. A longer version is published by CESIfo on November 9th.

Key point in both is that "The fiscal union demanded by Hollande now is an understandable attempt to compensate for the lack of competitiveness of the southern EU countries by resorting to international transfers, but these transfers would cement their lack of competitiveness and drive Europe into permanent stagnation. The travails of German reunification should be a warning against pursuing this course."

In other words, East German experience, per Sinn, suggests that fiscal (tax and transfers) union even with debt mutualisation (aka replacing national debts with federal debt) is not a road to achieving economic convergence across the EU Member States, but a road to human capital and investment transfers from uncompetitive 'South' to competitive 'North'. In effect, dressed up as a social ills salvation, it bears a prospect of sealing tight existent competitive differentials and making 'South' a permanent dependency sub-Union.

Pretty darn tough stance.

24/6/15: Ifo Miss is Not a Biggy...

Ifo business climate index for Germany fell from 108.5 in May to 107.4 (expected 108.1) in June, while the business expectations index was down from 103 to 102 (also missing expectation for 102.5) and the current assessment index fell from 114.3 in May to 113.1 in June (missing expectations for a decline to 114.1).

For all the media chatter about missed expectations, Ifo index is trending at levels consistent with close to 3% growth and well within the range of the average for Q1 2013-Q2 2015 period.

As chart above shows, Ifo has been signalling strong growth momentum in Germany for some time now, with volatility of the index reading around period averages being less pronounced than for the euro area as a whole.

The chart also shows recent uptick in economic climate conditions in the euro area as a whole. When we look at period averages, one interesting sub-trend to watch is the step-up change in growth conditions in the euro area as opposed to highly steady growth conditions in Germany.

13/12/2014: CESIfo on Minimum Wage Effects in Germany

An interesting research note from Germany's CESIfo institute on the effects of minimum wage law change. The note, titled "Minimum Wage: German Firms Plan Price Increases, Staff Cuts and Reductions in Working Hours" is available (in German) here:
http://www.cesifo-group.de/DocDL/ifosd_2014_23_5.pdf

Basically, on January 1, 2015 Germany will implement a Federal minimum wage of EUR8.50/hour (see background here: http://www.bbc.com/news/business-28140594).

CESIfo undertook a survey of employers' expectations as to hiring and labour utilisation / demand changes expected following its introduction. The key point to note is that these are expectations reported by surveyed businesses, not the actual responses.

Per CESIfo German companies that will be affected by the minimum wage as of 1 January 2015 are planning to

• Increase their prices (26 percent)
• Reduce bonuses (23 percent), 
• Reduce payrolls (22 percent), 
• Reduce working hours (18 percent), and 
• Scale back investment activity (16 percent). 

Furthermore, "most companies are planning to implement a combination of these measures, and only 43 percent of the firms affected plan not to react at all… eastern German companies will be far more deeply affected than their western German counterparts by a ratio of 43 percent to 24 percent."

By sector, the impact is distributed as follows:

• "Service providers, and especially those in the catering and hotel industry, mainly intend to respond by increasing prices (31 percent)."
• "In retailing, responses to the minimum wage were primarily cited as staff cuts (29 percent) and shorter working hours (33 percent)."
• "In manufacturing, staff cuts (26 percent) ranked just above reductions in bonuses (23 percent) and raising prices (23 percent)."

So may be we'll see an uptick in German inflation in early 2015... to the delight of the ECB and the detriment of all of us reliant on its low interest rates... But it will be inflation of a different nature...

7/10/2013: Ifo publishes updated forecast for Euro area growth: Q3 2013-Q1 2014

CESIfo issued an update to its Q3-Q4 2013 forecasts for the euro area today.

Per release:

"After six consecutive quarters of decline, GDP in the Eurozone increased by 0.3% in Q2 2013. Economic activity is projected to expand further over the forecast horizon (+0.1% in Q3, +0.3% in Q4 2013 and +0.4% in Q1 2014) mainly on the back of the expected pick-up in external demand as well as fiscal policy gradually becoming less contractionary."

"However, the recovery is likely to be very modest, as fiscal austerity measures and structural reforms currently undertaken by member states will continue to hamper the expansion of domestic demand."

Specifically:
-- "The unfavourable labour market conditions will keep on weighing on the development of real disposable income and private consumption will therefore recover only slowly."
-- "Aggregate investment is forecast to expand, albeit still at a rather low rate over the forecast horizon. This profile will be mainly driven by the increasing needs to replace depreciated capital as well as the robust foreign-demand growth."
-- "Under the assumptions that the oil price stabilizes at USD 111 per barrel and that the euro/dollar exchange rate fluctuates around 1.35, inflation is expected to remain well below 2% (1.5% in Q4 2013 and 1.4% in Q1 2014)."
-- "The major downside risks to this scenario arise from possible renewed escalations of the debt crisis and from a stronger than expected deceleration in some emerging markets."

Note: my work on positive euro area growth signals based on CESIfo data will be featuring in monthly economics slide deck on Business Insider - stay tuned. Meanwhile, two previous post covering advanced pre-conditions for the above forecasts:
http://trueeconomics.blogspot.ie/2013/10/4102013-eurocoin-cautious-return-of.html (note eurocoin-consisted forecast for Q3 2013 set by me at 0.1% which is in line with CESIfo forecast above).

Also, note my Sunday Times article from September 29, 2013 covering Ifo data on euro area economic conditions.

Stay tuned for the Sunday Times article posting here and for BusinessInsider slide link.

13/2/2013: CESIfo Index shows improvements in Global Economy

CESIfo institute has issued its analysis of the global economy and... some good news: per CESIfo index tracking global growth, world economic climate indicator finally is up after two consecutive declines.


The increase in the index "was mainly driven by significantly more positive assessments of the 6-month [forward] economic outlook." At the same time, "assessments of the current economic situation improved only slightly. After 6 months of stagnation, the prospects for the world economy seem to be brightening."

• Asia led the global index rise, with region index "now higher than its long-term average once again. Both assessments of the current economic situation, and especially expectations, have brightened considerably." 
• In the case of North America "the rise in the economic climate indicator was mainly due to improved assessments of the current economic situation. Despite the improvement, the current economic situation is not completely satisfactory in this region." 
• Per CESIfo release: "The current economic situation is also unfavourable in Western Europe. Assessments of the 6-month [forward] economic outlook, on the other hand, were significantly more positive, which led to a moderate overall improvement in the economic climate." 

CESIfo Index panel "on average expect short-term interest rates to remain largely unchanged over the next six months. However, they believe that long-term interest rates are set to increase slightly. On worldwide average, economic experts expect moderate growth in the value of the US dollar over the next six months."

30/1/2013: German Economy: Returning to zero growth in January 2013

Germany's CESIfo published the latests (January 2013) assessment of the state of the German economy in Manufacturing and these are slightly more upbeat than at the end of Q4 2012, albeit with some clear seasonal supports.

"In manufacturing the business climate indicator continued to rise. Manufacturers are more satisfied with their current business situation than last month. The improvement in expectations with regard to future business developments continued into the New Year. Optimism is returning. After three successive declines, capacity utilisation rates also rose."

As per data below, in manufacturing 'optimism' is not exactly 'returning', but rather 'pessimism is receding', as business expectations remain below 0 on balances:

"In wholesaling, on the other hand, the business climate clouded over. Wholesalers are less satisfied with their current business situation and slightly more pessimistic about future business developments. In retailing the business climate indicator rose somewhat. This was due to a slightly more positive assessment of the business situation, while retailers’ business expectations remained unchanged.

In construction the business climate index rose sharply. This was primarily due to far more optimistic expectations, which last reached such a high level in March 2012. Assessments of the current business situation also improved."

It is worth noting that in Construction sector, it was business expectations that drove overall index up sharply and these are exceptionally seasonally-driven:

 However, as balances data below shows clearly, three of five sub-sectors continue showing weaknesses:

Overall, the three core aggregate series are above 100 for the first time since May 2012 (good news), but at levels that are signalling stagnant or very weak growth.

• Climate indicator reading is at 104.2 - only sixth highest reading in last 12 months, and substantially below 108.2 reading in January 2012;
• Situation indicator is at 108.0, which is only 10th highest reading in last 12 months, and well below 116.3 recorded a year ago.
• Expectations are at 100.5, marking 5th highest reading in 12 months, down marginally on 100.7 in January 2012.

In terms of overall impact on the euro area, the above figures suggest that the January 2013 eurocoin indicator-based forecast (see details here) of -0.4% growth in January 2013 should be more moderate. Not enough data yet to recompute the actual forecast figure from -0.4%, but I believe it can be closer to -0.2-0.1%.