Ifo's October survey was a little more upbeat about the economic situation than last month. At 110.5 the headline climate indicator was up a full point versus its unrevised September reading, stronger than the market consensus and at its highest level since April 2014.
The increase reflected rises in current conditions and, in particular, expectations. The former rose just 0.3 points to 115.0, the fifth advance in the last six months although monthly changes here have been quite small. Expectations were up a sharper 1.6 points at 106.1 after a 4.4 point jump last time. Both measures also registered their best respective marks since April 2014.
At a sector level the picture was a little more mixed. Hence while there were improvements in morale in manufacturing (16.7 after 13.3) and construction (10.2 after 9.3), there was also some deterioration in retail (7.8 after 7.9), services (32.1 after 32.3) and, more markedly, wholesale (9.8 after 11.6).
Nonetheless, Ifo's latest findings sit well with yesterday's flash PMIs which similarly pointed to a tidy acceleration in business activity at the start of the new quarter. Both surveys are closely monitored in financial markets and together will be seen as increasing the likelihood of the ECB leaving monetary policy on hold in December.
Published by Munich's Ifo Institute, the Business Climate Index is closely watched as an early indicator of morale in German industry. In addition to overall gauge of sentiment, data are provided on its two components, current conditions and expectations. As a forward looking indicator, the latter is normally seen as the more important. Ifo surveys more than 7,000 enterprises in manufacturing, construction, wholesaling and retailing and a separate estimate of sector confidence is supplied for each.
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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