The German Ifo Business Climate Index for industry and trade has fallen in August, the third decline of the index in succession. The fell to 94.8 from 97.5 in July. The current business situation has been assessed clearly more unfavourably than in the previous month. In addition the firms also expect a further negative business development in the coming half year. The German economy is encountering an increasingly more difficult situation.
In manufacturing the business climate has cooled off further. The survey participants are noticeably less satisfied with their current business situation than in July. Moreover, they are markedly more sceptical
with regard to the six-month outlook. The survey respondents again expect weaker support from export business, and they plan to exercise more caution in hiring additional staff.
Prof. Hans-Werner Sinn, President of the Ifo Institute for Economic Research at the University of Munich commented: "The business climate in construction has worsened somewhat, with contractors appraising both their business situation as well as the six-month outlook more unfavourably. In retailing the business climate index fell slightly. Retailers are less dissatisfied with their current business situation but their expectations for the coming half year are again more sceptical than in the previous survey. In wholesaling, however, the business climate has brightened: The current situation is still seen as slightly positive and the outlook is assessed less critically."
The Ifo Business Climate Index is based on ca. 7,000 monthly survey responses of 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”, “satisfactorily” 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 of the percentages of the responses “good” and “poor”; the balance value of the expectations is the difference of the percentages of the responses “more favourable” and “more unfavourable”. Thebusiness climate is a transformed mean of the balances of the business situation and the expectations.
For calculating the index values the transformed balances are all normalised to the average of the year 2000.
Renewed Clouding of the Business Climate in the Service Sector
The Ifo Business Climate in the German service sector has worsened again in August. The indicator has thus fallen for the third time in succession. Behind this decline are two countervailing tendencies:
The service providers are somewhat more satisfied with their current business situation than in July, but they are clearly more sceptical regarding the six-month outlook. They plan to exercise more caution in hiring additional personnel.
