An early indicator of underlying trends in Europe's largest economy, compiled from a variety of key economic data by German business daily Handelsblatt, signals a limited improvement during the second quarter of 2002.

The newspaper’s February indicator is for the first time based on merged data from eastern and western Germany and registers a 0.4% increase, a marginal rise from January’s 0.3%. Although the all-Germany aggregated data has not previously been published, the new indicator has actually been rising since December.

Some economists believe the modest rise to be significant as it reflects economic trends three months hence, suggesting that the nation’s economic slowdown has stabilized ahead of a modest recovery.

The improved reading is largely a result of intangibles, in particular the Expectations sub-index of the closely watched Ifo business climate index. However, belying the optimistic Expectations data, there has been no concomitant improvement in demand for manufactured products; nor has the retail industry yet witnessed signs of a respite. As yet, recovery omens have been evident only within the construction industry.

Most informed observers believe the hoped-for upturn rests largely on the outcome of the annual payround as unions and management in individual industries draw their respective battle lines for the year ahead.

Meantime, more bad news on the employment front as the nation’s jobless total again yo-yoed above the critical four million mark – a blow to the re-election prospects for Chancellor Gerhard Schröder who has pledged to cut unemployment below 3.5 million.

Pontificated wisenheimer Paul Mortimer-Lee of Paribas: “Today’s 31,000 rise is the thirteenth in a row, but it will get grimmer. Will unemployment continue to rise? Do one-legged ducks swim round in circles?”

News sources: Handelsblatt (Germany); The Times (London)