On August 26 my former colleagues at DIW Berlin published Q3 ’15 value of the institute’s flash indicator of the state of the German economy. The overall indicator is a unitless index that is scaled to have unconditional mean of 100 (signalling normal circumstances), where smaller values signal below-average economic conditions and higher values mean above-average conditions. Historically, a value of 100 was on average associated with a q-o-q real GDP growth of 0.3%.
With a current value of 103.8 the indicator is slightly down from its Q2 value of around 107, but still above its neutral level of 100. In the previous quarter the team at DIW correctly predicted that q-o-q growth would amount to 0.4% in Q2 ’15 and despite a slightly weaker index, they remain confident that Q3 growth won’t be much different.
While the quarterly index is the headline index of the Barometer, it is always worth to take a look at the monthly series. The Barometer is based on monthly data and in fact the primitive index behind the Barometer is the monthly index that is aggregated using the Mariano and Murasawa (2003) pattern to form the quarterly index. I like to look at the monthly index, because it often can provide a more timely indication of the current trend (upward, downward or sideways), even though it is much more erractic.
If you consider the development over the past two years (beginning January 2013), the index began a gradualy hike towards a peak in January 2014 and subsequently followed a very mild downward trend. In 2015 the index has been less erratic than in the previous year, but it nonetheless appears to continue to gradually decrease. Note however that the neutral level of the index is at 33 and that it still remains above that level with around 35 points in August (the September prediction is roughly neutral with 33 point something).