Sentiment among German businesses is jubilant as the ifo Business Climate Index rose from 114.6 points last month to 115.1 points in June. This breaks May's record, reports Clemens Fuest, president of the ifo Institute, in his commentary on results published yesterday.
Companies were significantly more satisfied with their current business situation this month, noted. They also expect business to improve. Germany’s economy is performing very strongly, he continues. In manufacturing the index rose slightly.
Assessments of the current business situation remained unchanged at a very high level. Manufacturers are slightly more optimistic about the short-term future. Developments in demand and order levels were very favourable. Manufacturers plan to ramp up production.
Wholesale climate improves
In wholesaling the business climate improved for the third month in succession to reach its highest level since December 2010. Assessments of the current business situation hit a new record and expectations were upwardly revised.
In retailing the index improved notably. Retailers were far more satisfied with their current business situation. Their optimism about the short-term business outlook reached its highest level since September 2015.
In construction the index fell. Contractors marginally scaled back their assessments of the current business situation and business expectations, which nevertheless remain at a high level. Their very good order situation is expected to boost prices for construction services.
Bill Blain, head of capital markets/alternative assets at Mint Partners in London, reacted to the publication of the encouraging results in his customary exuberant fashion. “Economists are awfully excited,” he noted in his highly opinionated Morning Porridge bulletin.
“Some, including my tame macro man, Martin Malone, tell me this means there is a prospect of the German growth rate hitting a most un-European 4 percent! If you’d told me that a year ago…
“The Bundesbank was already crowing about rising consumer confidence, a construction uptick, the improving investment climate and solid employment metrics. Yesterday’s data suggest they are right?
What's not to like?
“What’s not to like about Germany? (That’s a rhetorical question. Don’t answer it.) Looking at an ifo chart, it is what I call “spikey”. It’s probably in overly optimistic territory now! It leads expectations and can often overestimate.
Confidence reflects and is magnified by optimism and can easily be dashed by events. In fact, such strong German data make me wonder if we’ve just headed through the peak European confidence zone.”
How the survey works
The ifo Business Climate is based on around 7,000 monthly survey responses from firms in manufacturing, construction, wholesaling and retailing. The firms are asked to give their assessments of the current business situation and their expectations for the next six months.
They can characterise their situation as
And their business expectations for the next six months as
- more favourable
- more unfavourable
The balance value of the current business situation is the difference between the percentages of the responses “good” and “poor”; the balance value of the expectations is the difference between the percentages of the “more favourable” and “more unfavourable”.
The business climate is a transformed mean of the balances of the business situation and the expectations. For the purpose of calculating the index values, the transformed balances are all normalised to the average of the year 2005.
In sober contrast
In sober contrast, however, sentiment among German service providers clouded over somewhat this month, according to a separate set of figures released this morning. The business climate index fell in June from 108.1 points to 107.9 points.
While service providers were slightly less satisfied with their current business situation, they were more optimistic about the months ahead, notes president Fuest. Service providers still plan to recruit additional staff.
Firms in the hospitality sector benefitted from the good weather, particularly in catering where the business climate improved markedly. Revenues also rose across the board. Haulage companies reported very good business too.
Haulage index up
Their index for the current business situation rose to its highest level in over a year. Travel agencies and tour operators reported a recovery in their turnover situation. Their assessments of the current business situation improved markedly.
In terms of their business outlook for autumn, however, travel agencies and tour operators are pessimistic, writes president Fuest, ending the morning on a more gloomy note.
Clemens Fuest, president of the ifo Institute