ifo: Further Fall in the Ifo World Economic Climate Indicator

The Ifo World Economic Climate clouded over in the fourth quarter of 2010 for the second time in succession. However, the indicator is still above its long-term average. The slight decline in the world economic indicator is solely attributable to the weakening of expectations for the coming six months. The current economic situation, in contrast, received better appraisals from the surveyed experts than in the previous quarter. On the whole, the results indicate that the recovery of the world economy will progress in the coming half year at a slower pace, but developments will continue to differ strongly in the various economic regions.

The economic climate indicator fell once again in North America and Asia but rose in Australia and marginally in Western Europe. In North America the appraisals of the current economic situation clouded over again, although the expectations for the coming six months remained constant. The economic situation in Asia worsened somewhat according to the economic experts, but especially the six-month expectations are less confident than before. In Western Europe and Australia the assessment of the current economic situation improved once again; whereas the six-month economic outlook weakened somewhat in Western Europe, it improved in Australia.

On a world-wide average, a moderate increase in prices is expected in the coming six months. The inflation forecasted by the WES experts will be particularly low this year in the euro area and in North America at 1.6% each.

The number of WES experts that anticipate increasing short- and long-term interest rates in the coming six months has again declined. Especially in Australia, China, Taiwan and South Korea, a further increase in central-bank rates is expected in the course of the coming six months.

In the assessment of the WES experts, the US dollar is slightly undervalued, and they expect the US currency to continue to lose value in the coming six months vis-à-vis most other currencies, especially in Western Europe, Asia and Australia.