ifo Business Climate Results of the ifo Business Survey for June 217 ifo Business Climate Index Hits New Record High Munich, 26 June 217 Sentiment among German businesses is jubilant. The ifo Business Climate Index rose from 114.6 points last month to 115.1 points in June, breaking last month s record. Companies were significantly more satisfied with their current business situation this month. They also expect business to improve. Germany s economy is performing very strongly. 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. In wholesaling the business climate improved for the third month in succession to reach its highest level since December 21. Assessments of the current business situation hit a new record high and expectations were also 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 215. 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. Clemens Fuest President of the ifo Institute ifo Business Climate for Industry and Tradeᵃ Seasonally adjusted 13 Index, 25 = 1 12 11 1 9 8 ifo Business Climate Assessment of business situation Business expectations 7 28 29 21 211 212 213 214 215 216 217 Source: ifo Business Survey, June 217. ifo Business Climate for Industry and Trade (Index, 25 = 1, seasonally adjusted) Month/year 6/16 7/16 8/16 9/16 1/16 11/16 12/16 1/17 2/17 3/17 4/17 5/17 6/17 Climate 18.6 18.6 16.6 19.7 11.6 11.5 111. 19.9 111.1 112.2 113. 114.6 115.1 Situation 114.3 115.2 113.2 115. 115.4 115.8 116.9 117.2 118.6 119.5 121.4 123.3 124.1 Expectations 13.2 12.5 1.3 14.5 16. 15.3 15.4 13.1 14. 15.4 15.2 16.5 16.8 Source: ifo Business Survey. For long time-series in Excel format consult www.cesifo-group.de/langereihen. 1/5
ifo Business Climate and Business Situation and Expectations by Sector Balances, seasonally adjusted ifo Business Climate Assessment of business situation Business expectations 5 Manufacturing 3 Construction 4 3 2 2 1 1-1 213 214 215 216 217-1 213 214 215 216 217 4 Wholesaling 3 Retailing 3 2 2 1 1-1 -1 213 214 215 216 217-2 213 214 215 216 217 Source: ifo Business Survey, June 217. ifo Business Climate by Sector (Balances, seasonally adjusted) Month/year 6/16 7/16 8/16 9/16 1/16 11/16 12/16 1/17 2/17 3/17 4/17 5/17 6/17 Industry and Trade 1.3 1.3 6.3 12.3 14. 13.8 14.9 12.7 15. 17.2 18.8 21.8 22.8 Manufacturing 1.7 1.7 7.1 13.8 16.9 14.9 15.5 14. 16.8 2.6 21.1 26. 26.1 Construction 5.1 5.7 5.7 9.1 9.9 1.7 12.9 1.5 7.8 9.5 11.6 12.8 12.4 Wholesaling 14.9 12.2 6.2 12. 1.2 15.3 18.2 14.9 22.4 18.5 19.9 2.3 23.6 Retailing 7.8 1.4 2.9 8.2 7.9 9.5 9.6 6. 4.6 6.6 13.4 11.4 16. Source: ifo Business Survey. The ifo Business Climate is based on ca. 7, 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 good, satisfactory or poor and their business expectations for the next six months as more favourable, unchanged or 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 responses 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 25. 2/5
ifo Business Cycle Clock for Industry and Tradeᵃ Balances, seasonally adjusted 5 Business expectations Upswing January of the respective year Development of the last six months June 217 Boom 4 3 2 1 215 214 211 21 216 217 28-1 213 212-2 -3-4 29 Recession Downswing -5-5 -4-3 -2-1 1 2 3 4 5 Assessment of business situation Source: ifo Business Survey, June 217. The ifo Business Clock shows the cyclical relationship between the current business situation and business expectations in a fourquadrant diagram. In this diagram economic activity shown on a graph plotting the economic situation against expectations - passes through quadrants labelled with the different phases of economic activity, namely upturn, boom, downturn, recession; provided that the expectation indicator sufficiently precedes the current business situation indicator. If survey participants assessments of the current business situation, and thus of business expectations, are negative on balance, the economic situation indicator moves into the recession quadrant. If the expectations indicator is positive (with a poor, but improving business situation on balance), economic activity is shown in the upturn quadrant. If the business situation and business expectations are both positive on balance, economic activity enters the boom quadrant. If, however, the expectations indicator turns minus (with the business situation remaining good on balance, but deteriorating), economic activity slips into the downturn quadrant. 3/5
ifo Business Cycle Traffic Lights for Industry and Tradeᵃ 1 % 67 33 28 29 21 211 212 213 214 215 216 217 ᵃ The probabilities are calculated on the basis of the monthly changes of the ifo Business Climate Index. Probability for expansion: green = high, yellow = medium, red = low. Source: ifo Business Survey, June 217. Monthly movements of the ifo Business Climate Index for Industry and Trade can be transformed with the help of Markov Switching Models into probability statements for the two cyclical regimes expansion or contraction. The ifo Business Cycle Traffic Lights provides the monthly regime probabilities for the expansion phase. The probabilities signal an economic expansion (green lights) insofar as they exceed the 66% mark; contractions insofar as they are under the 33% mark (red lights); or indifference (yellow lights) when in the range in between. This indifference interval can be interpreted as a buffer zone between the regimes expansion and contraction, in which particularly great uncertainty exists about the state of the economy. ifo Business Climate for Industry and Tradeᵃ Seasonally adjusted 125 ifo Business Climate Assessment of business situation Business expectations Index, 25 = 1 12 115 11 15 1 95 215 216 217 Source: ifo Business Survey, June 217. 4/5
Economic Growth in Germany and ifo Business Climate 6 4 2-2 -4-6 Real Gross Domestic Productᵃ Datenreihen4 ifo Business Climateᵇ Change compared with same quarter of previous year in % Balances 3 2 1-1 -2-3 -8-4 28 29 21 211 212 213 214 215 216 217 a Seasonally and calendar adjusted. b Industry and trade, seasonally adjusted. Source: German Statistical Office; ifo Business Survey, June 217. Production Index and ifo Business Climate for Manufacturing 2 15 1 5-5 -1-15 -2 Production Indexᵃ Datenreihen3 Datenreihen4 ifo Business Climateᵇ Change compared with same month of previous year in % Balances 4-25 28 29 21 211 212 213 214 215 216 217 a Seasonally and calendar adjusted. b Manufacturing, seasonally adjusted. Source: German Statistical Office; ifo Business Survey, June 217. 3 2 1-1 -2-3 -4-5 5/5