The December Ifo results were slightly stronger than expected. At 111.0, the headline sentiment indicator was up 0.6 points versus its unrevised November reading for its third increase in the last four months and its strongest print since February 2014.
The improvement was led by current conditions which saw a 1 point gain to 116.6, their fourth advance in a row and equalling their highest level since November 2011. Expectations were more subdued, edging just 0.1 points firmer to 105.6 and so failing by some margin to reverse November's 0.5 points decline.
Amongst the major sectors, morale was up 0.7 points at 15.4 in manufacturing, 1.8 points at 13.2 in construction and 2.7 points at 17.8 in wholesale. However, retail was only flat (9.4) and, less promisingly, the separate service sector survey recorded a 4.3 point drop in its climate indicator to 31.7, its lowest mark in four months.
Taken alongside last week's PMI and ZEW surveys today's Ifo report is this third recent piece of soft data suggesting that the German economy ended 2016 on a reasonably upbeat note. Still, the divergence in performance between manufacturing and services also apparent in the PMI findings is worth keeping an eye on. More of the same at the start of 2017 would not bode well for a sustained economic recovery.
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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