Summary: ifo business climate index bounces; expectations index back to March level; “many German companies” still pessimistic
As with other surveys which produce an index, 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 and the business surveys in the EU.
According to the latest figures released by ifo, its business climate index bounced to 79.5 in May. The reading was just above the expected reading of 78.3 and 5.3 points above April’s final reading of 74.2. The average reading since January 2005 is just above 97.
Its expectations index rebounded back to just above March’s reading. It increased from April’s final figure of 69.4 to 80.1 in May, above the expected figure of 75.0.
Following a recession in 2009/2010, the indices largely ignored the European debt-crisis of 2010-2012 which flowed from it, remaining at average to elevated levels through to early-2020. Their relationship with each other and to euro-zone GDP growth is shown below.
French and German 10-year bond yields both added a few basis points over the day. By the close of business, yields on 10-year German bunds and French OATs had both gained 3bps to -0.45% and -0.01% respectively.
Clemens Fuest, President of the ifo Institute, described sentiment at German companies as having “recovered somewhat” even as conditions had deteriorated further in May. However, he noted the latest expectations reading still implies “many companies are still pessimistic”, although he added “the gradual easing of the lockdown offers a glimmer of hope.”