Germany – Early Bird crawls to the zero line

Our leading indicator for the German economy also rose slightly in May, but at -6 points it is still just below the zero line.

Dr. Ralph Solveen

Commerzbank Economic Research

June 7 2024

The economy continues to be held back by a below-average global economic environment, which hardly changed in May. On the other hand, monetary policy is increasingly boosting the economy, which suggests that the economy will pick up in the second half of the year.

The chances of a sustained recovery in the German economy improved further slightly in May. Our Early Bird has risen for the fifth month in a row and now stands at -7 points (after -8 in April), just below the zero line. The main driver of the upward movement of the indicator, which has now been observed for ten months, is its monetary policy sub-component. While the ECB's significant interest rate hikes had a massive negative impact on the economy in summer 2023, this dampening effect has steadily diminished since then. This is because these hikes are now quite far in the past, meaning that the economy should have gradually become accustomed to the higher interest rate level again. As the real interest rate calculated by us is higher than for much of the past ten years, but still quite low compared to the average of the past thirty years, our indicator now even points to a positive monetary environment for the economy again.

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