ifo Business Climate Index Declines (July 2021)
Sentiment in the German economy has clouded over. The ifo Business Climate Index for Germany fell to 100.8 points in July, down from 101.7 points in June (seasonally adjusted.). Companies evaluated their current business situations as somewhat better, but their expectations for the coming months were significantly less optimistic. Supply bottlenecks and concerns over newly rising infection numbers are weighing on the German economy.
The index in manufacturing fell, due to a distinct decrease in optimism in companies’ expectations. That indicator declined for the fourth time in a row. In contrast, companies’ assessments of the current situation rose to their highest level since August 2018. Capacity utilization managed to rise from 85.9 to 87.1 percent, a figure that is considerably higher than the long-term average of 83.5. The scarcity of intermediate products is becoming more critical, and more and more companies complain of a lack of skilled workers.
In the service sector, the business climate deteriorated. Although service providers were more satisfied with their ongoing business, their view of the coming months is much less optimistic. Companies continue to expect rising sales figures, even if not as strong as in the previous month.
The Business Climate Index in trade took a downturn as well. The cautiously optimistic expectations of the previous months declined. In contrast, the indicator for the current situation rose somewhat. More and more companies in retail are also reporting supply bottlenecks.
In construction, the business climate improved. Companies were more satisfied with their current situation, and the expectations indicator rose for the third time in a row.
Clemens Fuest
President of the ifo Institute
