Sentiment in German business unexpectedly improved this month according to the new Ifo survey. At 112.9, the overall climate indicator was up 0.5 points from a marginally firmer revised March reading and at its highest level in six years.
However, there may be some disappointment that the headline rise was wholly attributable to the current conditions component and buoyancy here masked a modest deterioration in expectations. Hence, the former sub-index climbed 1.6 points to 121.1. This was its eighth consecutive increase and its strongest print since the middle of 2011. By contrast, expectations dipped 0.5 points to 105.2, their third drop in the last six months albeit still in line with a fairly flat trend since late 2016.
Despite the slightly less optimistic outlook, today's report suggests that the German economy is performing well and that growth should remain relatively robust for some time yet. This is much as signalled in last week's flash April PMIs.
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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