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Business is looking better in Germany. Just three days
ago, Louise Curley discussed the ZEW Investor Survey, which showed a surprising
gain. Now we have the parallel business confidence data compiled by Ifo, a
German economic research institute, from a survey of 7,000 business firms in
manufacturing, construction and trade. This survey, too, as the ZEW,
turned in a favorable performance for December, better than market
expectations. The "Business Climate Index" is 99.6 (2000=100),
with the component "Business Situation" and Business Expectations also
both at 99.6. All three indicators improved from 97.8 in November.
The improvement was shared by all major industry segments in the survey,
manufacturing, construction, wholesale and retail trade.
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Accompanying these indexes are diffusion measures showing the
balance of better and worse conditions. These diffusion gauges have
generally been negative, that is, more business managers continue to experience
deterioration than growth. Still, there is considerably less deterioration
than in the recent past. The overall business climate gauge is -1.7% in
December, its best level since August 2000 and up from -14.9% last May.
Current conditions are -6.0%, the best since January 2001 and much better than
April's -18.7%. Expectations are +2.6. This last, reflecting
business leaders' persistent hopes for better times, has frequently been
positive, most recently in late 2003 and early 2004.
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These improvements seem stronger than some views expressed
recently -- prompted perhaps by the riots in neighboring France, by recent
political uncertainty and by high energy costs -- that Germany is mired in a
distressing economic morass. But the upturns in these confidence measures
began about mid-year and survived all those negative weights on the
economy. Offsetting these factors has been the weaker euro and
commensurate advance in German competitiveness. Further, even employment
has been increasing. Since bottoming in April, employment has risen
164,000 and the locally defined unemployment rate has eased from 12.0% in March
to 11.5% in November, still high but well below the peak. Thus, the German
economy looks better, and this week investors in the ZEW survey and business
leaders in the Ifo poll have agreed with that perspective.