ifo Business Climate Index for Germany

ifo Business Climate Index Rises (March 2023)

Sentiment in German business has improved. The ifo Business Climate Index rose to 93.3 points in March, up from 91.1 points in February. This is its fifth consecutive rise. This upward development was driven primarily by business expectations; companies also assessed their current business as somewhat better. Despite turbulence at some international banks, the German economy is stabilizing.


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Illustration News: ifo business climate March 2023

In manufacturing, the index rose substantially. Companies were notably more satisfied with their current business situation. Moreover, pessimism almost completely disappeared from their expectations. Sentiment improved considerably, especially in key areas of manufacturing such as the automotive, chemical, electrical and electronics, and machinery and equipment industries.

In the service sector, the business climate continued its upswing. Current business developed much more satisfactorily. The expectations index rose to its highest value since February 2022. More service providers are expecting sales revenue to increase.

In trade, the index rose slightly. The recovery of recent months lost momentum. The indices for current business and expectations both climbed a little. However, there was almost no movement in retail, where companies are still pessimistic about the months ahead.

In construction, the business climate improved. This was due to less pessimistic expectations. Construction companies assessed their current business as somewhat worse.

Clemens Fuest
President of the ifo Institute

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ifo Business Climate Index Rises (March 2023)

info graphic ifo Business Climate March 2023

The ifo Business Climate is based on approx. 9,000 monthly responses from businesses in manufacturing, the service sector, trade, and construction. Companies are asked to give their assessments of the current business situation and their expectations for the next six months. They can describe their situation as “good,” “satisfactory,” or “poor” and their business expectations for the next six months as “more favorable,” “unchanged,” or "less favorable.” The balance value of the current business situation is the difference in the percentage shares of the responses “good” and “poor”; the balance value of expectations is the difference in the percentage shares of the responses “more favorable” and “less favorable.” The business climate is a transformed mean of the balances of the business situation and the expectations. To calculate the index values, the transformed balances are all normalized to the average for the year 2015.

info graphic ifo Business Climate March 2023

The ifo Business Climate is based on approx. 9,000 monthly responses from businesses in manufacturing, the service sector, trade, and construction. Companies are asked to give their assessments of the current business situation and their expectations for the next six months. They can describe their situation as “good,” “satisfactory,” or “poor” and their business expectations for the next six months as “more favorable,” “unchanged,” or "less favorable.” The balance value of the current business situation is the difference in the percentage shares of the responses “good” and “poor”; the balance value of expectations is the difference in the percentage shares of the responses “more favorable” and “less favorable.” The business climate is a transformed mean of the balances of the business situation and the expectations. To calculate the index values, the transformed balances are all normalized to the average for the year 2015.

info graphic ifo Business Climate March 2023

The ifo Business Cycle Clock shows the cyclical relationship between the current business situation and business expectations in a four-quadrant diagram. In this diagram, economic activity – shown on a graph plotting the current situation against expectations – passes through quadrants labeled with the different phases of activity, namely recovery, boom, slowdown, and crisis; provided that the expectations indicator sufficiently precedes the current business situation indicator. If survey participants’ assessments of the current business situation and their business expectations are both below average on balance, economic activity is plotted in the “crisis” quadrant. If the expectations indicator is above average (with an improving but below average business situation on balance), economic activity moves to the “recovery” quadrant. If the business situation and expectations are both above average on balance, economic activity appears in the “boom” quadrant. If, however, the expectations indicator falls below average (with a deteriorating but above average business situation on balance), economic activity slips into the “slowdown” quadrant.

info graphic ifo Business Climate March 2023

The ifo Business Uncertainty measures how difficult it is for managers to predict the development of their company’s business situation over the next six months. The measure is calculated based on the weighted fractions of companies that fall into the answer options “easy,” “fairly easy,” “fairly difficult,” and “difficult” of a corresponding question in the ifo Business Survey. To this end, the answer categories are mapped onto a numerical scale with equally spaced intervals. Theoretically, the ifo Business Uncertainty can range from 0 to 100. Higher values indicate higher uncertainty: the future business situation is more difficult to predict.

info graphic ifo Business Climate March 2023

Monthly  movements in the ifo Business Climate Index Germany can be translated into probabilities for the two cyclical regimes expansion and contraction using a Markov switching model. The ifo Business Cycle Traffic Lights show the monthly regime probabilities for the expansion phase. Probabilities exceeding the 66% mark signal an economic expansion (green lights); probabilities under the 33% mark signal a contraction (red lights); probabilities in the range in between those two marks signal indifference (yellow lights). This indifference can be interpreted as a buffer zone between the regimes expansion and contraction, in which particularly great uncertainty exists about the state of the economy.

info graphic ifo Business Climate March 2023

The ifo Heatmap is a compact summary of the ifo Business Cycle Clock for the individual sectors of the German economy. If the ifo Heatmap shows dark blue, then the business situation and expectations are below average and companies are in crisis. As business expectations improve, the light red recovery sets in. If the business situation and expectations are above average, companies are in a dark red boom, which is often referred to as overheating. If the light blue cooling sets in, then business expectations are deteriorating.

ifo Business Climate Germany

(Index, 2015 = 100, seasonally adjusted)

  03/22 04/22 05/22 06/22 07/22 08/22 09/22 10/22 11/22 12/22 01/23 02/23 03/23
Climate 90.5 92.0 93.1 92.4 88.9 89.0 85.1 84.7 86.3 88.6 90.2 91.1 93.3
Situation 97.1 97.7 100.0 99.7 98.0 97.7 94.7 94.4 93.3 94.1 94.2 93.9 95.4
Expectations 84.4 86.6 86.6 85.6 80.7 81.1 76.4 76.0 79.8 83.4 86.4 88.4 91.2

Source: ifo Business Survey.
© ifo Institute

ifo Business Climate Germany and by Sector

(Balances, seasonally adjusted)

  03/22 04/22 05/22 06/22 07/22 08/22 09/22 10/22 11/22 12/22 01/23 02/23 03/23
Germany -2.1 1.0 3.5 1.9 -5.6 -5.4 -14.1 -15.0 -11.5 -6.3 -2.9 -0.8 3.8
Manufacturing -2.7 -0.1 3.1 0.1 -6.0 -6.1 -13.1 -15.3 -11.9 -5.7 -0.8 1.5 6.6
Service Sector 1.0 5.8 8.6 10.9 1.5 1.8 -8.2 -8.5 -5.3 -1.2 0.2 1.3 8.9
Trade -11.9 -13.1 -10.7 -14.7 -21.5 -25.7 -32.1 -31.9 -26.9 -20.1 -15.4 -10.6 -10.0
Construction -12.6 -20.5 -12.4 -10.0 -16.4 -14.9 -21.9 -24.0 -21.4 -21.9 -20.7 -19.0 -17.9

Source: ifo Business Survey.
© ifo Institute

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Contact
Dr. Klaus Wohlrabe

Dr. Klaus Wohlrabe

Deputy Director of the ifo Center for Macroeconomics and Surveys and Head of Surveys
Tel
+49(0)89/9224-1229
Fax
+49(0)89/9224-1463
Mail
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