Trading the EURUSD, EUR Futures and Euro Stoxx 50 Futures
- ifo Business Climate Index was 117.5.
- The forecast was 116.6.
- This is quite good for the EURUSD, and for equities in Europe.
Sentiment among German businesses is very strong. The ifo Business Climate Index rose to a new record high of 117.5 (Around 90% of responses were submitted before the end of the “Jamaica” coalition talks on Sunday.) points in November from 116.8 (Seasonally adjusted.) points in October. This was due to far more optimistic business expectations. Companies’ assessments of the current business situation were no longer as positive as last month. The German economy is on track for a boom. The latest figures indicate economic growth of 0.7 percent in the fourth quarter, pointing to growth of 2.3 percent for 2017 as a whole.
In manufacturing the index also hit a new record high thanks to far more optimistic expectations. Manufacturers slightly scaled back assessments of their current business situation, which nevertheless remain at a high level. A growing number of manufacturers plan to increase prices.
In wholesaling the business climate index rose markedly and is now just slightly below its historical record high. Wholesalers were considerably more satisfied with their current business situation. They also expect business to pick up further over the next six months. In retailing, by contrast, the business climate deteriorated. Retailers’ assessments of their current business situation were far poorer, but they expressed greater optimism about the next six months.
In construction the business climate index fell. Contractors slightly scaled back assessments of both their current business situation and their expectations, which nevertheless remain at a high level.
President of the ifo Institute
ifo Business Climate for Industry and Trade
(Index, 2005 = 100, seasonally and calendar adjusted)
ifo Business Climate by Sector
(Balances, seasonally and calendar adjusted)
ifo Business Climate
The ifo Business Climate 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 normalised to the average of the year 2005.
ifo Business Cycle Clock
The ifo Business Clock shows the cyclical relationship between the current business situation and business expectations in a four-quadrant diagram. In this diagram economic activity – shown on a graph plotting the economic situation against expectations – passes through quadrants labelled with the different phases of economic activity, namely upturn, boom, downturn, recession; provided that the expectation indicator sufficiently precedes the current business situation indicator. If survey participants’ assessments of the current business situation, and thus of business expectations, are negative on balance, the economic situation indicator moves into the “recession” quadrant. If the expectations indicator is positive (with a poor, but improving business situation on balance), economic activity is shown in the “upturn” quadrant. If the business situation and business expectations are both positive on balance, economic activity enters the “boom” quadrant. If, however, the expectations indicator turns minus (with the business situation remaining good on balance, but deteriorating), economic activity slips into the “downturn” quadrant.
Increases in the dispersion measure signals greater uncertainty on the part of firms. Values can range from between 0 and 100. The measure is based on responses to questions related to expectations regarding the six-month business outlook and is generated from the dispersion of these expectations at any given time.
ifo Business Cycle Traffic Lights
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.