Germany´s Recession Indicator Flashes Yellow!

By 19/04/2018News

19/04/2018 – 13:00 am: The protectionist measures that the USA is taking against its trading partners are now also leaving their mark on Germany. The recession indicator for Europe’s largest economy calculated by the Hans Böckler Foundation jumps to its highest level since March 2016 and now signals a recession probability of 32.4% after values of 6.8% were measured in March.
The indicator is calculated on three components: The change in industrial production, stock market volatility and sentiment indicators (such as the purchasing manager indices) and is based on a „traffic light system“. After a prolonged green wave that has lasted since mid-2016, the indicator now jumps into the yellow range. At least caution is called for at the moment!
It is to be expected that this warning signal will also have an impact on the ECB’s monetary policy. Especially in view of the still weak inflationary trend. The rate of inflation in the monetary union is currently “only” 1.4% and thus significantly below the targeted 2% inflation rate that the ECB is aiming for. Restrictive monetary policy measures are therefore not expected in the short term.
As a result, it remains to be seen that the interest rate differential between the USA – where four interest rate hikes are expected in 2018 – and Europe will widen further. In this context, it is also difficult to imagine that the euro can continue its strength against the greenback.

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