Summary: ifo business climate index extends May bounce; expectations index back to February level; “light at the end of the tunnel”; bond yields fall as US infection rates renew doubts.
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.
According to the latest figures released by the Institute, its business climate index bounced to 86.2 in June. The reading was above the expected reading of 84.8 and 6.5 points above May’s final reading of 79.7. The average reading since January 2005 is just above 97.
Its expectations index also jumped, registering a result just short of February’s reading. It increased from May’s final figure of 80.5 to 91.4 in June, above the expected figure of 87.0.
“This is the strongest increase ever recorded,” said Clemens Fuest, President of the ifo Institute. “German business sees light at the end of the tunnel.”
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 fell modestly on the day as US infection rates increased doubts about the speed of economic recovery there and, by extension, elsewhere. By the close of business, the 10-year German bund yield had lost 4bps to -0.48% and the French OAT yield had shed 3bps to -0.11%.