All eyes on Germany’s release of ifo Business Climate Index

Analysts and investors were keeping their eyes wide open Monday morning in anticipation over Germany’s release of its ifo Business Climate Index.

To their relief, “sentiment in the German economy has brightened,” as the German ifo Business Climate Index rose to 93.0 points in May, after 91.9 points in April (seasonally adjusted) and beating analyst estimates which expected the index to decline to 91.4 points.

“Companies were above all much more satisfied with their current business. In contrast, expectations barely changed, with companies remaining skeptical. The German economy has proven itself resilient in the face of inflation concerns, material bottlenecks, and the war in Ukraine. There are currently no observable signs of a recession,” the report noted.

In April 2022, the ifo Business Climate Index stabilised after a plummet in March 2022 to 90.8 points from February’s 98.5 as sentiment in the German economy collapsed following the outbreak of the war in Ukraine.

March’s figures showed a record collapse in trade expectations of 13.3 points, a decline higher that at the outbreak of the COVID-19 crisis in March 2020.

This month, the index increased “markedly” in the manufacturing sector surging by 2.8 points from April 0.7 points decline.

Positive sentiment was also witnessed in the service sector (up by 8.1 points), index in trade was also up by -10.8 points (compared to last month’s -13.2 points) and in construction, the business climate has recovered from its slump in April by -13.4 points (compared to April’s -20.0 points).

The German ifo Business Climate Index is a highly regarded early indicator of economic developments within the country published on a monthly basis.

According to its official website, the index is “the most important leading indicator for the development of the economy in Germany”. It measures entrepreneurs’ sentiment about the current business situation in the country and their expectations for the following six months.

Research for the index is conducted via 9,000 phone interviews with firms in the manufacturing, service, construction, wholesaling and retailing sector.

Results can fluctuate between extreme lows -100 (all firms considering their situation as poor or expecting business to become worse) or extreme highs +100 (all firms considering their situation as good or expecting business to improve.

The positive ifo Business Climate Index has also affected European markets as they grew bullish on Monday morning. Germany’s DAX futures were up 0.22%.

Other EU stocks followed the surge with London’s FTSE 100 futures up by 0.66% and France’s CAC 40 futures up by 0.11%.