ifo business climate index rises in April, slightly above expected figure; German economy is stabilizing, especially thanks to service providers.”; current conditions index up, expectations index up; German, French 10-year yields up noticeably; expectations index implies euro-zone GDP contraction of 0.5% in year to July.
Following recessions in euro-zone economies in 2009/2010, the ifo Institute’s Business Climate Index largely ignored the European debt-crisis of 2010-2012, mostly posting average-to-elevated readings through to early-2020. However, the index was quick to react in the March 2020 survey, falling precipitously before recovering quickly in subsequent months. Readings through much of 2021 generally fluctuated around the long-term average before dropping away in 2022.
According to the latest report released by ifo, German business sentiment improved for a third consecutive month. April’s Business Climate Index posted a reading of 89.4, slightly above the generally expected figure of 89.0 as well as March’s final reading of 87.9. The average reading since January 2005 is just over 96.
“Companies were more satisfied with their current business,” said Clemens Fuest, President of the ifo Institute. “Their expectations also brightened. The economy is stabilising, especially thanks to service providers.”
German firms’ views of current conditions and their collective outlook both improved. The current situation index increased from March’s figure of 88.1 to 88.9 while the expectations index increased from 87.7 after revisions to 89.9.
German and French long-term bond yields finished noticeably higher on the day. By the close of business, German and French 10-year yields had both gained 8bps to 2.59% and 3.09% respectively.
The ifo Institute’s business climate index is a composite index which combines German companies’ views of current conditions with their outlook for the next six months. It has similarities to consumer sentiment indices in the US such as the ones produced by The Conference Board and the University of Michigan.
It also displays a solid correlation with euro-zone GDP growth rates. However, the expectations index is a better predictor as it has a higher correlation when lagged by one quarter. April’s expectations index implies a 0.5% year-on-year GDP contraction to the end of July.
