Summary: ifo business climate index down again in August, slightly more than expected; German companies’ sentiment on downward trend; current conditions, expectations indices both down; German, French yields rise moderately; expectations index implies euro-zone GDP contraction of 1.2% in year to November.
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 and stagnating through 2023 and the first half of 2024.
According to the latest report released by ifo, German business sentiment weakened slightly from its already-depressed level. August’s Business Climate Index posted a reading of 86.6, a touch above the generally expected figure of 86.0 as well as July’s final reading of 87.0. The average reading since January 2005 is just over 96.
“The sentiment among companies in Germany is on a downward trend,” said Clemens Fuest, President of the ifo Institute. “The German economy is increasingly falling into crisis.”
German firms’ views of current conditions and the outlook both deteriorated. The current situation index slipped from 87.0 to 86.6 while the expectations index declined from 87.1 after revisions to 86.5.
German and French long-term bond yields both increased moderately on the day. By the close of business, the German 10-year bond yield added 2bps to 2.25% while the French 10-year yield finished 3bps higher at 2.96%.
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 three months. August’s expectations index implies a 1.2% year-on-year GDP contraction to the end of November.
