Ifo's January business climate survey was quite upbeat but still rather less optimistic than in December and on the soft side of the market consensus. At 109.8, the headline index was 1.2 points down on its unrevised year-end print and at its lowest level since September.
The relatively modest decline was wholly attributable to the expectations component which fell 2.3 points, its steepest drop in a year, to 103.2, a 3-month trough. By contrast, current conditions actually improved slightly, edging up from 116.7 to 116.9, the fifth increase in a row and their strongest print since November 2011.
At a sector level morale was weaker across the board. Retail (5.8 after 9.4) saw the steepest decline but manufacturing (13.8 after 15.4), construction (10.7 after 13.1) and wholesale (14.7 after 17.9) were all not far behind.
Today's results are not too different from yesterday's January flash PMI report which also pointed to a slight cooling in overall economic activity. Still, both surveys remain firm enough to signal a decent start by the German economy to 2017.
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.