-Johannes Gareis, an economist at Natixis
Despite the fact that German manufacturing PMI at 52.9 and services index at 56.4 are still pointing at the resilience of Europe's locomotive, business confidence in Europe's number one economy fell more than expected amid signs that growth in the German economy will slow in the second quarter.
The Ifo's institute's business climate index, which is based on a poll of 7,000 executives, declined to 110.4 in May from 111.2 seen in the prior month, whereas economists had predicted a fall to 110.9. A gauge of current conditions unexpectedly dropped, inching lower to 114.8 in May from 115.3 in the previous month, while a measure of expectations fell to 106.2, the lowest level since October. Also data showed that German economic growth was propped up exclusively by domestic demand in the beginning of the year, while the Bundesbank expects the expansion to cool in Q2. This is a disappointing news, as Germany is key to the Eurozone's recovery, which is struggling to grow.
Meanwhile, Italy has decided to take an unconventional step, including prostitution and illegal drug sales in GDP calculation this year. This is believed to provide a boost to the stagnant economy and Prime Minister Matteo Renzi's effort to narrow Italy's deficit to 2.6% of GDP this year.
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