Germany – Early Bird is losing momentum

The upward trend observed in our Early Bird Indicator in recent months has flattened out. In July, it increased by just one point and is therefore still just below the zero line at -1. The monetary policy environment has continued to improve, as the short-term real interest rate has fallen further in light of the fact, that a further interest hike of the ECB is generally expected for the September meeting. In addition, the rate is now significantly lower than a year ago. At the same time, however, the global economic environment has deteriorated for the fourth month in a row, which is only partially offset by easing headwinds from the FX market.

Despite the recent slower increase, the Early Bird still shows that economic conditions have improved significantly over the past twelve months. This does not necessarily contradict the Ifo business climate or the purchasing managers' indices, which have recently fallen and thus put a noticeable damper on hopes of an imminent economic recovery. This is because the economic conditions indicated by our indicator only have a delayed impact on actual developments. For this reason, the Early Bird was also ahead of the sentiment indicators in previous cycles. For example, it reached its lowest point in July 2008 – before the collapse of Lehman Brothers – and rose again significantly in the following months, while the Ifo Business Climate fell for a further six months.

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