ifo Business Climate Index for Germany

Coronavirus and Bottlenecks Put a Damper on ifo Business Climate (November 2021)

Sentiment in the German economy has taken a downward turn. The ifo Business Climate Index fell from 97.7 points in October to 96.5 points in November. Companies were less satisfied with their current business situation, and expectations became more pessimistic. Supply bottlenecks and the fourth wave of the coronavirus are challenging German companies.


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Infographic, ifo Business climate Index November 2021, news picture

In German manufacturing, the index fell as companies assessed their current business as considerably worse. Their expectations, by contrast, brightened somewhat, especially due to developments in the automotive industry. Supply bottlenecks in intermediate products and raw materials still have a grip on the manufacturing sector and a majority of companies plan to raise prices.

Sentiment in the service sector deteriorated noticeably. Skepticism grew substantially, especially as regards expectations. The last time the expectations indicator saw such a heavy decline was in November 2020. However, service providers were less satisfied with their current situation as well. The fourth coronavirus wave caused expectations to plunge especially in the tourism and hospitality industries.

The index slid in trade because of greater pessimism in companies’ expectations, although they rated their current situation as somewhat improved. The mood in retail continues to suffer due to supply problems and prices are more likely to increase over the coming months. 

The business climate in Germany’s construction industry worsened slightly. Following the continuous upswing of recent months, expectations have turned more pessimistic. Companies judged their current situation to be somewhat better.

Clemens Fuest
President ot the ifo Institute

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Coronavirus and Bottlenecks Put a Damper on ifo Business Climate (November 2021)

info graphic ifo Business Climate November 2021

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 November 2021

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.

Infographic, ifo Business Cycle Clock Germany, November 2021

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.

Infographic, ifo Business climate Index November 2021

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.

Infograpic ifo Business Climate index November 2021

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.

Infographic, ifo Business climate Index November 2021, Heatmap of ifo Business Survery

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)

  11/20 12/20 01/21 02/21 03/21 04/21 05/21 06/21 07/21 08/21 09/21 10/21 11/21
Climate 91.0 92.9 90.9 93.1 96.8 96.4 99.2 101.9 100.9 99.7 99.0 97.7 96.5
Situation 89.8 91.8 89.6 91.2 93.5 94.4 96.1 100.1 100.5 101.6 100.5 100.2 99.0
Expectations 92.3 93.9 92.2 95.1 100.1 98.5 102.4 103.8 101.3 97.9 97.5 95.4 94.2

Source: ifo Business Survey.
© ifo Institute

ifo Business Climate Germany and by Sector

(Balances, seasonally adjusted)

  11/20 12/20 01/21 02/21 03/21 04/21 05/21 06/21 07/21 08/21 09/21 10/21 11/21
Germany -1.1 3.0 -1.3 3.5 11.5 10.8 16.8 22.8 20.6 18.0 16.4 13.7 11.0
Manufacturing 3.9 10.3 10.0 16.7 23.8 24.8 25.8 29.1 27.8 24.5 20.0 17.5 16.5
Service Sector -3.2 0.3 -3.6 -1.3 6.9 3.8 13.7 22.9 20.0 17.9 19.2 16.6 11.5
Trade -4.1 0.6 -16.6 -14.2 -1.2 -0.4 8.4 18.0 15.9 9.1 9.0 3.7 2.6
Construction -0.9 -0.7 -5.2 -2.7 2.7 1.0 3.3 4.5 6.3 8.1 11.0 12.8 12.0

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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