Today, the IFO-institute stated that
„The Ifo Business Climate Index for German industry and trade dropped to 106.6 points in April from 106.7 points in March. Although companies were somewhat less satisfied with their current situation, their business expectations brightened once again.“
This is not too surprising (for Germans, but probably for everyone else), since the German economy seems to be a little decoupled from the rest of the world economy for some time now: With an unemployment rate of 6.5% in March 2016, Germany shows a robust job-market, even if experts do not see a further decline for the rest of the year due to the refugees now flowing into the job market. Also, the German economy shows a robust if small growth (at least compared to other countries), with now a projected growth rate of about or above 1.5% for 2016.
However, even if the share of exports contributing to the German growth story is on the decline, it still stands for a large chunk of it. Hence, in case German exports fall further, the chances of a parallel slowdown of the German economy are high. And when looking into the different economies (only, I will skip all of the other risks, like the conflict in the Ukraine, the Chinese South Sea or ISIS) of the world, the picture is not too glossy: The famous „BRICS“ are – with the notable exception of India – on a decline of their own making: Nothing to add regarding Brazil, which is falling off the cliff not only in economic terms. Also Russia is not really doing great at the moment. And well, China, if you believe the data, it is still growing, but nevertheless has serious problems.
So, the „BRIC’s“ might not really contribute to the German growth story, but the US economy with its „strong recovery“ after the financial crisis surely will, won’t it? It is not necessary to really take a deep dive into economic figures to figure out (pun intended) that in the USofA not everything is so glossy after all: Similar to the UK, where BHS is said to be on the brink of insolvency, there has been a flood of retail-chain-bankruptices in the US lately, with Aeropostale probably being the next victim. Bankruptcies are generally on the rise in the US – and not being limited to the degrading oil-sector. Also, Silicon Valley finally seems to lose it: Earnings in the so much cherished tech-sector will most probably decline on a YoY-basis. Talking of decline: US-banks had to report a crash in profits for the first quarter of 2016. And – given these developments – not too surprisingly: corporate defaults in the US are rising! Perfectly fitting into this grim picture is the record outflow of money from hedge funds in the first quarter of 2016. With a view to these figures, I wouldn’t call it a mere coincidence that the US manufacturing PMI is going further south. I could go on and on and on with this enumeration (for example by invoking the stress level, US workers feell or the rising suicides rates in the US), however, to sum it up: The State of the Union is a rather dismal one. Hence, the chances of the US economy contributing to the German growth story at large are rather small.
When I was young, Germans said „if the US economy catches a cold, we (the meaning the German economy) get the flu!“ Not only the US-economy being on the retreat, this saying might come true again and there will probably some skid-marks to be seen on the IFO index rather sooner than later.