Results of the January 2016 Ifo Business Survey
Ifo Business Climate Index Drops Markedly
Sentiment among German businesses weakened at the beginning of the year. The Ifo Business Climate Index for German industry and trade fell to just 107.3 points in January from 108.6 points (This figure was revised due to the seasonal adjustment) in December. Assessments of the current business situation were scaled back slightly, but remained very good. Business expectations, by contrast, clouded over significantly. The year started with an unpleasant surprise for the German economy.
In manufacturing the business climate index fell to a 12-month low. Favourable assessments of the current business situation were only scaled back a little, but business expectations were substantially revised downwards. Although the chemicals sector benefited from low oil prices, sentiment weakened in several other branches, including mechanical engineering and the automotive sector, mainly due to the poorer export outlook. Capacity utilisation rates in manufacturing on the whole rose by 0.6 percentage points to 85.1 percent.
In wholesaling the business climate index rose, mainly due to far better assessments of the current situation. Wholesalers’ business expectations, by contrast, deteriorated slightly. In retailing the index remained almost unchanged. While retailers were slightly less satisfied with their current situation, their business expectations turned positive.
In construction the business climate index continued to fall markedly, but still remains clearly above its long-term average. The decline was due to more pessimistic expectations on the part of contractors. Assessments of the current business situation, by contrast, reached their highest level in over two years.
President of the Ifo Institute
Results of the Ifo Business Survey in Germany in all details (in German)
Ifo Business Climate Germany (Index)
Business Situation and Expectations by Sector (Balances)
Ifo Business-Cycle Clock Manufacturing Industry
Ifo Business-Cycle Clock Industry and Trade
Ifo Business Cycle Traffic Lights Industry and Trade
|Ifo Business Climate Germany (Index, 2005 = 100, seasonally adjusted)|
|Climate|| 106.7|| 106.8|| 108.0|| 108.6|| 108.6|| 107.6|| 108.1|| 108.4|| 108.5|| 108.2|| 109.0|| 108.6|| 107.3|
|Situation|| 111.7|| 111.6|| 112.4|| 114.2|| 114.6|| 113.5|| 114.0|| 114.9|| 114.1|| 112.7|| 113.4|| 112.8|| 112.5|
|Expectations|| 102.0|| 102.3|| 103.7|| 103.3|| 102.9|| 102.1|| 102.5|| 102.2|| 103.3|| 103.9|| 104.8|| 104.6|| 102.4|
|Source: Ifo Business Survey |
|Ifo Business Climate Germany by Sector (Balances, seasonally adjusted)|
|Trade and Industry|| 6.6|| 6.8|| 9.0|| 10.2|| 10.1|| 8.3|| 9.2|| 9.8|| 10.1|| 9.4|| 11.0|| 10.2|| 7.8|
|Manufacturing|| 9.3|| 9.5|| 12.6|| 14.1|| 13.7|| 11.2|| 11.6|| 11.1|| 10.1|| 9.8|| 12.3|| 12.2|| 8.3|
|Construction|| -5.6|| -5.8|| -7.6|| -5.1|| -4.6|| -3.5|| -4.1|| -2.6|| 0.3|| 0.6|| 2.4|| 1.6|| -0.7|
|Wholesaling|| 8.3|| 8.5|| 10.4|| 12.8|| 10.1|| 7.9|| 14.3|| 13.3|| 13.8|| 13.8|| 15.1|| 11.8|| 13.0|
|Retailing|| 3.2|| 3.6|| 5.4|| 2.9|| 7.1|| 5.9|| 4.3|| 10.9|| 14.8|| 10.9|| 8.2|| 7.3|| 7.2|
|Source: Ifo Business Survey |
The Ifo Business Climate Index is based on ca. 7,000 monthly survey responses from firms in manufacturing, construction, wholesaling and retailing. The firms are asked to give their assessments of the current business situation and their expectations for the next six months. They can characterise their situation as “good”, “satisfactory” or “poor” and their business expectations for the next six months as “more favourable”, “unchanged” or “more unfavourable”. The balance value of the current business situation is the difference between the percentages of the responses “good” and “poor”, the balance value of the expectations is the difference between the percentages of the responses “more favourable” and “more unfavourable”. The business climate is a transformed mean of the balances of the business situation and the expectations. For the purpose of calculating the index values, the transformed balances are all normalized to the average of the year 2005.
Monthly movements of the Ifo Business Climate Index for Industry and Trade can be transformed with the help of Markov Switching Models into probability statements for the two cyclical regimes expansion or contraction. The Ifo Business Cycle Traffic Lights provides the monthly regime probabilities for the expansion phase. The probabilities signal an economic expansion (green lights) insofar as they exceed the 66% mark; contractions insofar as they are under the 33% mark (red lights); or indifference (yellow lights) when in the range in between. This indifference interval can be interpreted as a buffer zone between the regimes expansion and contraction, in which particularly great uncertainty exists about the state of the economy.