Germany: Early Bird continues to climb

Our leading indicator for the German economy continued to rise in April and is now only just in negative territory at -7.

Dr. Ralph Solveen

Commerzbank Economic Research

May 10 2024

This gives us hope that the rise in real GDP in the first quarter will not prove to be a flash in the pan.

Good news from the Early Bird: in its modified form , it rose further from -11 to -7 in April and is therefore not far from the zero line. The main reason for this rise is that two negative factors for the German economy – the appreciation of the euro at the turn of 2022/23 and the ECB's interest rate hikes – are receding further and further into the past. As a result, they are slowing down the German economy to a lesser extent and putting less and less downward pressure on the Early Bird. For example, the indicator for the price competitiveness of the German economy – the real external value of a notional Deutschmark – was barely higher in April than a year ago. The same applies to the short-term real interest rate. As the latter is still quite low in a long-term comparison, the monetary policy sub-component of the early bird turned positive three months ago, and it has further risen since then.

By contrast, the global economic environment deteriorated in April. This is because all three manufacturing PMIs that we take into account (USA, eurozone excluding Germany and China) fell compared to the previous month. This slowed down the increase in the Early Bird, but did not prevent it.

The sharp rise in the Early Bird in recent months shows that the cyclical environment for the German economy has recently improved noticeably. Consequently, there are more and more indications that the economy is picking up, even if the “hard" data, which are still weak in some cases, suggest that this recovery will probably only begin in the second half of the year.

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