The July Ifo survey showed a surprisingly small deterioration in economic sentiment. The headline business climate index dropped just 0.4 points to 108.3, reflecting slightly weaker business expectations and masking a minimal improvement in the assessment of current conditions.
Expectations declined a modest 0.9 points to 102.2 and so only reversed a portion of June's 1.4 point gain. The new level was still towards the upper end of the range recorded over 2016 so far and suggests that businesses are not overly concerned about the implications of the Brexit vote. At the same time, the current conditions measure was up 0.1 points at 114.7, its third consecutive advance and its highest level since August 2015.
At a sector level, morale was more positive in construction and retail but declined in both manufacturing and wholesale. However, even where falls were registered, the July levels remained relatively firm compared with recent months.
The Ifo findings are broadly consistent with the results of the flash PMIs released last week which pointed to an increase in overall business activity rates (the composite output index touching a 7-month high). Although early days yet for now it seems as if the fallout from Brexit has been largely contained to the UK. That said, at least some spill over effects seem impossible to avoid over the medium term and while the ECB should be relatively happy with the July data financial markets will probably be disappointed should the central bank not deliver another round of easing at its September meeting.
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.