Ifo's September survey was a good deal more optimistic than generally anticipated with a sizeable rise in the headline business climate index reflecting solid improvements in morale across all of the major production sectors.
Overall economic sentiment climbed more than 3 points from a marginally upwardly revised August reading to 109.5, its sharpest rise since July 2010 and its highest mark since May 2014. The spike here was led by the expectations component which gained an impressive 4.4 points to 104.5, its best outturn in almost a year. Current conditions also made useful ground although a 1.8 point bounce failed to fully reverse August's 1.9 point decline.
Amongst the major sectors, morale was up 6.9 points at 13.3 in manufacturing, 3.5 points at 9.1 in construction and 5.9 points at 11.6 in wholesale. Retail (7.9 after 2.5) similarly advanced strongly and the separate service sector survey (32.2 after 29.8) followed the same pattern.
Taken at face value the September Ifo results suggest that after a soft August, the economy rebounded quite well at quarter-end. This is in marked contrast to the findings of last week's flash PMI survey which pointed to a loss of momentum on the back of slowing services. Which report proves the more accurate remains to be seen.
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.