Ifo's November survey was a little more upbeat than generally anticipated as both current conditions and expectations for future business developments made renewed headway. At 109.0, the overall business climate indicator was 0.8 points above its unrevised October reading and at its highest level since June 2014.
The current conditions gauge climbed 0.7 points to 113.4, only reversing around half of the previous month's decline but staying within the tight 111.5-114.9 range seen throughout the year to date. Expectations advanced a marginally larger 0.8 points to 104.7, their third increase in a row and their strongest mark since May last year.
Outside of retail (8.2 after 10.9) morale was up in all the major sectors. Hence, manufacturing recorded a 2.4 point rise to 12.1, construction a 1.9 point increase to 2.6 and wholesale a 1.3 point advance to 15.1. Apart from retail, all are now either at or within striking distance of their respective highs for the year to date.
Today's cautiously bullish results provide further evidence that, at least so far, the VW emissions scandal has had little effect on overall confidence. Much the same applies to the terrorist attacks in Paris although these probably occurred too late to be fully reflected in this month's results. That said, the decline in retail sentiment to its lowest point since July is consistent with other indications that the third quarter bounce in household spending (see today's German 3Q GDP calendar entry) could prove short-lived. As the major driving force behind the expansion in June-September, any deceleration here would not be good news for either the German or Eurozone economies. To this end, Friday's GfK consumer climate survey is worth noting especially closely.
Published by the Ifo Institute, the Business Climate Index is closely watched as an early indicator of current conditions and business expectations in the German economy. The Institute surveys more than 7,000 enterprises on their appraisals of the business situation and their short-term planning.
The headline index has a good correlation with developments in overall GDP and so has a major influence in shaping views on how the national economy is performing. The main focus is the expectations index. It is generally published during the last week of the month for the current month with more detailed information available about a week later.
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