In the euro area some countries are also having difficulties in borrowing money on acceptable conditions on the international credit markets due to particularly high national debts. Dirk Meyer, Helmut Schmidt University, Hamburg, sees the possibility of a threatening insolvency of a euro-area country, which because of the monetary union is no longer a "private" affair. The strict application of the no-bail-out stipulation, in his opinion, would lead to durable externalisation of costs at the expense of the remaining euro area countries. For this reason he argues, in the context of a de facto existing community of liability, for a no-no-bail-out-strategy that calls for "unique assistance with a withdrawal of the insolvent country from the euro area". Also for Rolf Hasse, Fraunhofer Center for Central and Eastern Europe, Leipzig, the dimensions of the crisis and the number of the affected EU member states turn a rigorous no-bail-out policy into a conflict situation. The EU countries should provide assistance within the Union "but with repayment and loss compensation". In addition this assistance must be combined with economic-policy stipulations.
Klaus Abberger and Wolfgang Nierhaus
Business-cycle indicators should signal the cyclical developments in economic activity reliably and in a timely fashion. Important indicators for the analysis of German economic activity are, for example, the Ifo Business Climate, Industrial production and incoming orders in manufacturing. However, in all economic activity indicators the business-cycle signal they contain is always accompanied by unsystematic noise or an "interfering signal". For this reason an important quality criterion for economic activity indicators is the relationship contained in the time series between business cycle signal and interfering signal. This article presents two important measurement criteria - the IC relation (ratio of the average amplitudes of the irregular to the cyclical factor) and MCD measure (months for cyclical dominance) that builds on this; with these seasonally adjusted time series can be analysed with regard to the order of magnitude of irregular components to smooth business-cycle components. Then an examination is made of the quality of the Ifo Business Climate and its components in comparison with important indicators of the official statistics with regard to the two criteria mentioned above. The presented results show that both the business climate for manufacturing as well as the business climate for industry and trade perform very well in terms of the MCD criterion. The Ifo Business Climate is thus a monthly business cycle indicator which is very timely, gives early signals for business activity and in addition contains a very clear, i.e., cyclically significant, economic activity signal. For this reason the Ifo Business Climate is rightly regarded as a key indicator for the appraisals of the business trend in Germany.
Erich Gluch and Ludwig Dorffmeister
2007 and 2008 were good years on the whole for German construction. Especially commercial construction displayed respectable growth. In the medium and long term, the high growth rates of recent years (3 percent per annum on average) will not be matched, however. In future only moderate growth will be seen. According to calculations of the Ifo Institute average real growth in construction demand in the next ten years will be barely ½ percent p.a. This takes into account that construction output in 2009 will clearly shrink. The housing construction sector has been dominated for many years by building activity in already existing residential units. Taking into account the already very large housing stock (more than 39 million units), little change is expected here up to the end of the forecast period. According to the Ifo estimates only 160,000 units in single and two family houses will be completed in 2018 and approximately 115,000 units in apartment buildings. Although this would be 100,000 units more than in 2008, it would amount to 180,000 fewer than the annual average of 1993 to 2000. In total, residential construction will expand more rapidly than the two other construction sectors, largely because of continuingly high modernisation expenditures. In non-residential construction public-funded construction will be stimulated from the economic stimulus programmes to support overall demand considerably in 2009 and 2010 - while industrial demand will fall simultaneously. On a long-term basis there will be hardly any growth in both areas, however. This means that the volume of commercial construction in 2018 will be just above the level of 2008.
André Kunkel and Klaus Abberger
For nearly six years the Ifo Institute has asked its monthly business survey participants for their appraisals of bank lending policies. Initially this question was posed twice a year. Due to the current financial market crisis and the important role of credit financing for the economy, the question on credit conditions has been posed monthly since November 2008 and the results published as the "Ifo Credit Constraints". Since late summer 2008 the lending behaviour of the banks has changed clearly, according to the assessments of the surveyed firms: The access to credit has become considerably more difficult. The share of firms that report an accommodating loan policy has been reduced by nearly half, from 9 to 4.7 percent. The percentage of firms that have appraised the lending policies more unfavourably has increased from 28.7 to 42 percent.
Klaus Abberger
The Ifo Business Climate Index for German trade and industry fell further in March. The firms reported a worsening of the current business situation. However, with regard to business developments in the coming six months they are again less pessimistic. The surveyed participants do not reckon with a noticeable improvement of the business situation, however. According the surveyed firms, the economy has not yet bottomed out. In manufacturing the indicator remained stable while it deteriorated in wholesaling and retailing. The business climate improved in construction. Hopes based on the economic stimulus packages may have had a positive effect. In consumer-oriented retailing, wholesaling of consumer goods and the production of consumer goods, no major improvement was evident. In addition the exporting firms in manufacturing expect a further degradation of their foreign business. The Ifo Employment Barometer for German trade and industry fell noticeably in March. Especially the industrial firms plan to reduce their personnel and make more extensive use of shorter working hours.
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