At 101.1, the economic climate indicator still remained above its long-term average of 94 from 1990 to 2004. Hans-Werner Sinn, President of the Ifo Institute for Economic Research, said: “The steep path of global economic growth over the past two years was part of a cyclical recovery that reached its peak in mid-2004. By the end of 2004, the economic cycle had already entered a cooling-down phase.”
The survey showed that economic growth was expected to slow still further in the months ahead.
“A soft landing of the economic climate index is seen by surveyed experts to be the most likely scenario for 2005,” the ICC-Ifo survey said. “Most determinants of the short-term prospects remain positive. However, further downward pressures remain: possible disruption in oil supplies as a result of terrorism or another attack on an oil-producing country in the Near East.”
The survey said growth in Asia and Latin America was the fastest for more than two decades last year, and would remain robust in 2005; elsewhere, performance in 2004 was more varied.
“Growth was strong in North America, moderate in Japan, and remained weak in Europe,” according to the survey. “In 2005, these trends will continue in a slightly softened way in all three cases.
Economic regions like the euro area and Japan will have to live with a rise of their currencies vis-a-vis the US dollar, making their exports less competitive compared to US goods, and the US economy will face rising interest rates and a less expansionary fiscal policy, bringing new challenges to keep up economic growth.
A regional breakdown shows that the climate indicator fell most clearly in Western Europe, now standing slightly below the long-term average for the first time since the end of 2003. The decline in the indicator in Western Europe especially reflects the less favourable assessments of the current situation in Germany and France.
The worsening of the economic climate in Asia is solely the result of less favourable assessments of the current economic situation, especially in Japan, whereas the expectations for the coming six months improved slightly over the October survey. Unlike the other regions, the climate indicator rose in North America – but only in the US, not in Canada – for the first time in a year.
The increase was the result of somewhat more favourable assessments of the current business situation; the six-month expectations, however, continued to worsen.
In a special section of the survey, respondents said that counterfeiting and theft of intellectual property are among the most pressing problems facing business today.
Since 1981 the Ifo Institute has conducted a quarterly survey in numerous countries on business cycle developments and other economic factors in the experts’ home countries. The January 2005 survey received responses from 1,131 experts in 90 countries. The survey is conducted in co-operation with the International Chamber of Commerce in Paris (ICC) and with financial support from the European Commission.
A detailed regional analysis appears in the quarterly journal, CESifo World Economic Survey. This report contains advance information on the most important results. A press release about the economic climate in the euro zone will appear on February 22.