Contrary to the PMI’s on Monday, the German IFO business climate indicator surprised on the upside of expectations in May. The headline index stabilized at 114.2, while the consensus was looking for a marginal worsening in sentiment (to 113.7). The details show that the current assessment sub-index rose from 121.0 to 121.4, reaching an all-time high, while the expectations index dropped slightly (from 1077 to 107.4). The IFO added that export expectations for German firms slightly improved in May, despite international risks. The outcome is in contrast with the PMI’s, which dropped sharply in May, all in all, we believe however that the German recovery will slow in the second quarter as the sharp 1.5% Q/Q growth figure from Q1 won’t be sustainable especially as demand from abroad is weakening.
Euro zone industrial new orders fell for the first time in six months in March. On a monthly basis, industrial orders fell by 1.8% M/M, somewhat weaker than the expected 1.1% M/M decline. The details show a sharply decline in capital goods orders (-4.6% M/M) and in both durable (-6.8% M/M) and non-durable (-3.5% M/M) consumer goods. Orders for intermediate goods rose slightly (0.6% M/M) in March. National data show that weakness was led by the PIG countries: Ireland (-13.0% M/M), Portugal (-8.4% M/M), Greece (-4.0% M/M), but also in Germany orders fell significantly (-3.4%). In Spain, Italy and the Netherlands, on the contrary, orders increased in March. Order data are usually volatile and after five consecutive increases, the decline is no surprise and shouldn’t be worrying, a bleak sign however is the poor performance of the peripheral (PIG) countries.