Germany – Early Bird back in positive territory

Good news for the German economy: According to our leading indicator for the German economy, the Early Bird, cyclical conditions are above average again for the first time in almost two years. At 7 points (after zero points in July), the Early Bird was back in positive territory for the first time since September 2022. The Early Bird has thus risen by more than 75 points since its low in summer 2023.

The biggest contribution to this sharp rise and also to the increase in August came from the improvement in the monetary policy environment. The longer it has been since the ECB's massive interest rate hikes, the more the German economy is likely to have adjusted to the higher interest rate level, meaning that the dampening effect is diminishing. In the meantime, according to our calculations, monetary policy is actually tending to stimulate the economy again, as the short-term real interest rate is now lower than a year ago – partly due to the ECB's first interest rate cut and the next move looming next week – and is also rather low in a longer-term comparison. The economy continues to face headwinds from the global economy. The purchasing managers' indices for manufacturing in the US, China and the eurozone (excluding Germany) that we take into account hardly changed in August. However, they are all below the 50 mark, signaling a contraction in this sector. Exchange rates are currently having hardly any effect on the economy, as the German economy's price competitiveness indicator is currently at a similar level to a year ago.

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