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Economy in Brief

German Ifo Surprises on the Upside, Reaches Highest in Nearly 15 Years
by Carol Stone February 23, 2006

Germany's Ifo Business Climate survey continued and spread the better news about European industry which has been flowing out this week. After a surprisingly good result in January, forecasters expected that the February Ifo index would retreat a bit. But it added another 1.3 points to the 2000-based index, bringing the level to 103.3, the highest since July 1991. The accompanying diffusion measure rose to +5.8%, its best since October 1991.

The improvement was visible in both current conditions and expectations. The "Business Situation" measure of current activity "rose" to -0.3% for February from -4.5% last month and -15.5% a year ago. Expectations, usually higher than current conditions (but not always) and tending to lead (by about 4 months, as seen in the graph) have been positive in four of the last five months and reached +12% in February, their strongest since late 1994. The leading tendency suggests that the improvement in the business climate should continue in coming months.

All major sectors participated in February's advance: manufacturing, already indicating a net expansion for many months, reached +14.9%, the best level in six years. Construction and retailing activity are still well in negative territory, but have improved dramatically, nonetheless: retailing stands at -7.0% compared with -28.7% a year ago and construction was "only" -20.5%, compared with -42.9% a year ago. This last, while the weakest sector overall, is perhaps most impressive. If prospects for construction activity are looking better, that likely reflects business leaders' belief that the progress in other sectors will justify at least some expansion and/or modernization of facilities. The better outlook in retailing also suggests that those business executives see relative improvements in consumer spending.

Germany (SA) Feb 2006 Jan 2006 Dec 2005 Year Ago 2005 2004 2003
Ifo Business Climate Index,
  2000 = 100
103.3 101.8 99.6 95.2 95.5 95.5 91.8
  Diffusion % +5.8 +2.6 -1.7 -10.3 -9.8 -10.0 -17.2
Manufacturing: Diffusion % +14.9 +13.6 +8.9 +2.5 +1.1 +4.4 -7.9
Construction: Diffusion % -20.5 -22.1 -29.8 -42.9 -37.4 -42.6 -42.9
Business Situation: Diffusion % -0.3 -4.5 -6.3 -15.5 -14.2 -17.4 -27.2
Business Expectations: Diffusion % +12.0 +10.8 +3.0 -5.0 -5.2 -2.2 -6.7
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