Shocked by the slowdown? Germany’s most prominent leading indicator, the Ifo index, dropped in October to107.4 from 107.7. While the current assessment component fell 103.6, from 104.2, expectations remained almost stable.
The German economy remains in good shape. The solid labour market and recovering industrial activity bode well for stable growth in the coming quarters. The external environment, however, gives rise to some new caution. The US debt crisis and its possible fallout on economic activity, combined with the stronger exchange rate are not the most favourable mix for the German export sector. Even though the German economy has become less dependent on its exports in recent years, due to solid domestic demand, strengthening exactly this immunity should be one of the main challenges for the next German government.
With spy affairs, European summits and bank stress test discussions, today’s Ifo will probably not get a lot of attention. However, the drop is a good reminder that German invulnerability might not last forever.