Summary: ifo business climate index up again in March; higher than expected figure; highest value since mid-2019; index now implies positive euro-zone GDP growth.
Following a recession in 2009/2010, the ifo Institute’s business climate index largely ignored the European debt-crisis of 2010-2012, remaining at average-to-elevated levels through to early-2020. However, the index was quick to react in the March 2020 survey, falling precipitously. The rebound which began in May was almost as sharp but subsequent readings then stagnated at below-average levels.
According to the latest figures released by the Institute, its business climate index increased to 96.6 in March, ending a run of readings near 90. The reading was above the expected reading of 93.2 and 3.9 points above February’s final reading of 92.7. The average reading since January 2005 is just below 97.
The expectations index also increased, rising from February’s revised figure of 95.0 to 100.4, also above the generally-expected figure of 95.0. The current situation index rose from 90.6 to 93.0.
“This is its highest value since June 2019. Companies were clearly more satisfied with their current business situation. Optimism about the coming months has also returned. Despite the rising rate of infections, the German economy is entering the spring with confidence,” said Clemens Fuest, the president of the ifo Institute.
German and French 10-year bond yields declined moderately on the day. By the close of business, the German 10-year bund yield had gained 4bps to -0.35% and the French 10-year OAT yield had added 3bps to -0.11%.
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.