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Analysis

German Ifo business climate index

by Gabriel Stein

Tue 25 Feb 2014

German Ifo business climate index Enlarge Chart loading Image

What the chart shows: The chart shows the Ifo Business Climate Index (index 2005=100) as well as the difference between the two main sub-indices: Current situation and Business expectations.

Why the chart is important: German business confidence continued to improve in February. Since business and consumer surveys normally lead the economic cycle, that should be good news. The latest reading (111.3) is the highest since July 2011 and well above the 101.2 average since 1991. However, there are two possible dark clouds on the German horizon. One is the weakness of domestic demand, as evidenced in the breakdown of the Q4 GDP data published on 25 Feb 2014. The second is the fall in the Ifo future expectations index in February. The fall was small (a drop from 108.9 to 108.3); but, since the current situation index rose, the gap between the two sub-indices widened. When this gap goes negative and widens, it tends to be an early indicator that overall confidence will eventually turn down as well. One month’s data does not change the outlook. But, if repeated, it is a sign that the German recovery may be slowing again.

Chart and comments provided by Stein Brothers (UK) www.steinbrothers.co.uk