The ifo Business Uncertainty Indicator

Economic uncertainty is a much-discussed topic in politics, central banks, and macroeconomic research. In the past decade, uncertainty has often been cited to explain the slowing of the economy, for instance during the eurozone sovereign debt crisis, the Brexit negotiations, the trade war between the US and China, and the war in Ukraine with its economic impacts. Uncertainty can affect the economy through various channels. On the one hand, it can increase risk premiums on financial markets and thus the cost of financing. On the other hand, higher uncertainty can make households and firms more cautious and may cause them to postpone decisions that are not easily reversed. If households are reluctant to buy durable consumer goods, such as cars and furniture, and businesses postpone investments and new hires, overall economic demand can be weakened.