14/2/16: Ifo WorldEconomic Climate Index: 1Q 2016

Global growth leading indicators are screaming it, Baltic Dry Index is screaming it, PMIs are screaming it, BRICS are living it, and now Ifo surveys are showing it: global economy is heading into a storm.

The latest warning is from the Ifo World Economic Climate Index.

Per Ifo release: “The Ifo Index for the world economy dropped from 89.6 points to 87.8 points this quarter, drifting further from its long-term average (96.1 points). While assessments of the current economic situation brightened marginally, expectations were less positive than last quarter. The sharp decline in oil prices seems to be having no overall positive economic impact. Growth in the world economy continues to lack impetus.”

In numbers, thus:

• Headline World Economic Climate Index is now averaging 88.7 over the two quarters through 1Q 2016, which is statistically below 97.7 average for the 2 quarters through 3Q 2015 and 93.2 average for 4 quarters through 1Q 2016. Current 2 quarters average is way lower than 8 quarters average of 98.4. Historical average is 94.9, but when one considers only periods of robust economic growth, the index average is 98.9. Again, current 2 quarters average is significantly below that.
• Present Situation sub-index 2 quarters average is at 87.0, which is woefully lower than 2 quarters average through 3Q 2015 at 91.6 and is well below 96.0 average for the historical series covering periods of robust economic expansions.
• Expectations for the next 6 months sub-index is at 90.4 on the 2 quarters average basis, down from 103.5 2 quarters average through 3Q 2015 and below historical (expansion periods only) average of 101.5.


Geographically, per Ifo release: “The economic climate deteriorated in all regions, except in Oceania, Asia and Latin America. In Oceania the climate index stabilised at a low level, and in Asia and Latin America it edged upwards. The indicator is now below its long-term average in all regions, with the exception of Europe. The climate in the CIS states and the Middle East clouded over, especially due to poorer economic expectations. In Europe WES experts are slightly less positive about future economic developments than in October 2015. In North America and Africa, by contrast, the slightly less favourable economic situation led to a deterioration in the economic climate.”

You can see my analysis of the European index data here: http://trueeconomics.blogspot.com/2016/02/5216-ifo-economic-climate-index-for.html.



5/2/16: Ifo Economic Climate Index for Euro area: 1Q 2016

Ifo Economic Climate Index in the Euro Area has posted another contraction at the start of 1Q 2016 marking the third consecutive quarter of declines and reaching the lowest level since 1Q 2015. IFO Economic Climate Index (the headline index for the series) for the Euro area fell to 118.9 in 1Q 2016 from 122.0 in 4Q 2015. Activity signalled by the index, however, remains above the historical average at 107.5 an well above downturns-consistent average of 84.8.

The chart below shows index trends:

As highlighted in the chart above, EU Commission own sentiment index for economic activity is also pointing to weakening growth conditions in 1Q 2015. The EU Commission Sentiment Index was un a divergence to the Ifo index since the start of 2015.

Two core components of the Index also moderated in 1Q 2016. Present Situation sub-index fell from 153.8 for 4Q 2015 to 151.0 in 1Q 2016, marking the first quarter of contraction after four consecutive quarters of increases. The sub-index remains firmly ahead of the historical average of 127.5.

Perhaps the most worrying is the decline in Expectations for the next 6 months sub-index which fell from 103.3 in 4Q 2015 to 100.0 in 1Q 2016. This marks third consecutive quarter of declines in expectations and the index level currently is closer to the historical average of 95.8.

Overall, the gap between expectations forward and present conditions assessment has declined. Gap index (my own calculation) is now at 66.2 for 1Q 2016 against 67.2 in 4Q 2015. This suggests that weaker expectations are now starting to feed through to weaker present assessments.

A chart below illustrates the trends for sub-indices:

Per Ifo release: “Assessments of the current economic situation were most negative in Greece and Finland, but the current economic situation also remains strained in France, Italy and Cyprus. The situation was only slightly better in Spain, Portugal and Austria; but assessments for Austria were far less negative than last quarter. The sharpest recovery was seen in Ireland, where survey participants assessed the current economic situation as very good. In Germany the economic situation is considered to be good, although assessments were somewhat less favourable than last quarter.

The six-month economic outlook remains positive nearly everywhere. Economic expectations brightened in Austria, France, the Netherlands, Estonia and Latvia. In the other countries the outlook either remains unchanged, or is somewhat less positive. WES experts were only slight pessimistic about Greece, Portugal and Spain.”

12/8/15: Ifo Index of economic conditions: Euro Area 3Q 2015

Latest Ifo Index of Economic Climate for the Euro Area fell from 129.2 for 2Q 2015 to 124.0 for 3Q 2015, running ahead of 118.9 reading in 3Q 2014 and at the second highest level since 4Q 2007.

Present Situation Index reading, however, is up at 148.3 in 3Q 2015, compared to 145.5 in 2Q 2015 and 128.7 in 3Q 2014. The index is at its highest reading since 4Q 2011. Overall, based on Present Situation assessments, 1Q 2015 - 3Q 2015 activity (average of 137.1) is running below the levels of activity during previous expansionary sub-cycle of 1Q 2011 - 3Q 2011 (average of 152.9), suggesting weaker growth conditions in the current recovery phase than 4 years ago.

Expectations for the next 6 months period Index slipped significantly in 3Q 2015 to 109.8 from 119.7 reading for 2Q 2015 and matching rather poor expectations reading recorded in 1Q 2015. The Index is down on 3Q 2014 when it stood at 113.1. Over the entire 2015 to-date, the index has averaged 113.1 against same period average of 117.5 for 2014, and identical to 113.1 average for the same period of 2011. On expectations basis, there is weak optimism among survey participants in growth conditions forward.

Expectations Index gap to Present Conditions is currently at 74% compared to 82.3% in 2Q 2015 and 93.4% in 1Q 2015. This suggests overall deepening gap between current assessment of economic situation and forward expectations to the downside on forward expectations. Still, judging by 6mo lags, current conditions continue to turn out better than previous expectations of the same would have implied, with 6 mo lagged expectations index under-shooting forward 6 months reading for actual conditions by 38.5 points.

Charts to illustrate:

As charts above show:

• Expectations Index (6mo forward) suggests weaker conditions expectations in the future and remains consistent with poor producers' expectations prevailing from around 4Q 2013 on.
• Current situation assessment, meanwhile, is improving, but remains relatively weak and only most recently (2Q-3Q 2015) reaching above historical average line.
• Current economic sentiment published by the EU Commission has now been diverging from 6mo forward expectations published by Ifo for the period starting from 4Q 2014, with expectations being reported by Ifo running more subdued (and worsening) than EU Commission reading of current conditions.
• Despite being more optimistic than Ifo Expectations, and despite running above its own historical average, the EU Commission Sentiment Index remains rather subdued by historical standards.

In simple terms, things are getting better, but these improvements appear to be more on the surprise side, rather than structural side.