MNI 5 THINGS: May German Biz Confidence Likely Underestimated

--German May IFO Data Due for Release Fri

     LONDON (MNI) - The German Ifo Business Climate sentiment index eased to

102.1 in April, a 13-month low, the first month since a rebase in the index and

the incorporation of German services activity. Data released Friday will show

whether business optimism managed to edge higher or if domestic and external

factors continued to generate anxiety.

     Ahead of the release, we outline five themes we feel warrant particular

attention.

     - Slight Tendency to Underestimate May IFO. 

     Over the last 13 years analysts have tended to underestimate the May Ifo

headline index number. They have underestimate it on nine occasions, with an

average miss of 2.3 points. Although analysts have overestimated the May only

four times, with an average miss was -1.9, they did all arrive in the past seven

years, including last year. These figures, however, calculate the difference

between the Ifo index, prior its most recent rebase, and the corresponding

forecast. Last month, the first taking 2015 as the base year, analysts

overestimated the April result by 0.7 points.

     - Sentiment Lower Since November Peak. 

     Since peaking at a record high 105.2 last November, the headline Ifo index

has headed in one direction only, downwards. Consecutive falls since then left

the index at 102.1 in April, the lowest since March 2017 and below the 12-month

average of 104.0. Zooming out, however, the index continues to signal a robust

business landscape, with the April level comfortably above the series average of

97.3.

     - German GDP Softening Confirmed. 

     A fall back in business sentiment this year shouldn't be a total surprise,

however, coming off the back of a strong 2017. Average German quarterly GDP

growth in 2017, at 0.7% q/q, was at its highest level since 2010 (1.1%), fuelled

by the synchronised pickup in global demand. This growth momentum has since

cooled, supplemented by geo-political events and one-off shocks (weather,

illness, strikes), culminating in a sharp drop in Q1 GDP to 0.3% (confirmed

Thursday). An unwind of the more temporary factors, alongside fiscal stimulus,

should see business sentiment, and growth, edge higher again.

     - Business Expectations Fragile. 

     The Business expectation index dipped below the 100-mark for the first time

since last March in May, suggesting an immediate uptick in overall business

sentiment is not necessarily on the cards. This weakness was observed in all

sectors, with the exception of construction, with firms in manufacturing, trade

and services all less optimistic on the month. Surprisingly, the Ifo dispersion

index, a measure of uncertainty among firms, fell to a record low in May.

     - BNB Business Survey Offers Rare Heads Up. 

     A one-off change to the calendar meant that, for one month only, the May

BNB business sentiment index, a gauge of Belgian economic activity, would be

printed in advance of the German Ifo number. It fell 0.8 points to 0.2 in May,

below the strong outturns in the first two months of the year (1.8 and 1.9

respectively).

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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