ifo Business Climate Index for Germany

ifo Business Climate Recovers Slightly (September 2019)

Sentiment among German executives has improved slightly. The ifo Business Climate Index rose in September from 94.3 to 94.6 points. This increase was due to a better assessment of the current situation. However, the outlook for the coming months deteriorated again. The downturn is taking a breather.


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english Graphik News picture Business Climate Index September 2019

In manufacturing, the business climate has only one direction: downward. Companies were once again less satisfied with their ongoing business, and their expectations for the coming months remained pessimistic. The current demand development and production plans offer no promise of improvement in the coming months.

In services, the business climate has seen a marked recovery following the previous month’s decline. Service providers were substantially more satisfied with their current business situation, and the outlook for the next half of the year brightened again.

The business climate in trade took another slide. Traders viewed their current situation as somewhat less good and also expect their business to decline further in the next few months.

In construction, the Business Climate Indicator rose, thanks to more optimistic expectations. The construction companies still assessed their situation as excellent, but less so than in the previous month.

 

Clemens Fuest
President of the ifo Institute

english graphic  ifo Business Climate September 2019

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.

english graphic  ifo Business Climate September 2019

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.

english graphic  ifo Business Climate September 2019

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 economic situation against expectations – passes through quadrants labeled with the different phases of activity, namely upturn, boom, downturn, and recession; provided that the expectation indicator sufficiently precedes the current business situation indicator. If survey participants’ assessments of both the current business situation and business expectations are negative on balance, the economic situation indicator is in the “recession” quadrant. If the expectations indicator is positive (with a poor but improving business situation on balance), economic activity is shown in the “upturn” quadrant. If the business situation and business expectations are both positive on balance, economic activity is shown in the “boom” quadrant. If, however, the expectations indicator turns negative (with a good but deteriorating business situation on balance), economic activity slips into the “downturn” quadrant.

english graphic  ifo Business Climate September 2019

An increase in the dispersion measure signals greater uncertainty on the part of companies. Values can range between 0 and 100. The measure is based on responses to the question relating to expectations regarding the six-month business outlook and is generated from the dispersion of these expectations at any time.

english graphic  ifo Business Climate August 2019

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.

ifo Business Climate Germany

(Index, 2015 = 100, seasonally adjusted)

  09/18 10/18 11/18 12/18 01/19 02/19 03/19 04/19 05/19 06/19 07/19 08/19 09/19
Climate 103.6 102.9 102.4 101.3 99.9 98.9 99.8 99.4 98.2 97.5 95.8 94.3 94.6
Situation 106.9 106.6 106.4 105.6 104.9 104.0 104.3 103.7 101.3 101.1 99.8 97.4 98.5
Expectations 100.4 99.4 98.5 97.3 95.1 94.1 95.6 95.3 95.2 94.0 92.1 91.3 90.8

Source: ifo Business Survey.
© ifo Institute

ifo Business Climate Germany and by Sector

(Balances, seasonally adjusted)

  09/18 10/18 11/18 12/18 01/19 02/19 03/19 04/19 05/19 06/19 07/19 08/19 09/19
Germany 26.5 25.1 23.9 21.6 18.4 16.2 18.3 17.3 14.7 13.1 9.5 6.2 6.7
Manufacturing 23.5 18.8 17.9 15.0 11.6 9.6 7.4 4.1 4.4 1.3 -4.3 -6.0 -6.4
Service Sector 32.4 32.2 31.9 27.9 25.6 22.1 26.6 27.4 21.2 20.3 18.3 13.0 16.6
Trade 11.8 10.8 10.1 9.5 4.9 4.7 8.3 7.2 5.4 7.9 1.5 -2.4 -3.7
Construction 31.1 32.2 28.9 28.7 20.1 18.4 21.7 21.7 24.8 22.5 23.1 21.5 22.2

Source: ifo Business Survey.
© ifo Institute

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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