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Economy in Brief

 Business Confidence Improves in Germany and Italy; Is Unchanged in France
by Louise Curley March 28, 2006

March surveys indicate that business confidence is surprisingly strong in Germany and Italy, but subdued in France. The first chart shows the IFO business climate index for Germany and the ISAE business confidence indicator for Italy. The second chart shows the percent balance between those in the manufacturing industry, who believe conditions are improving and those who believe they are worsening for Germany and France.

Protests over a new law that makes it easier to fire young workers may have dampened French business confidence--it has shown little improvement since October of last year. However, in Germany, a strike by municipal workers against a proposal to increase the work week to 40 hours from 38.5 hours with no increase in pay has been in progress since February 6, with little or no effect on confidence.

On the contrary, Germany's IFO Business Climate Index (2000=100) rose 1.9% in March surprising most observers. The consensus had been for a slight decline. The index is now at 105.4, its highest level since April, 1991. The Business Situation or Current Conditions Index at 105.1 is also at a level last reached in November, 1991 and the Expectations Index is at its highest level since October 94. The third chart shows the history of the Business Situation and Expectations Indexes since their inception in January, 1991.

Although Italy's ISAE measure of business confidence rose in March--1.6%--to reach 94.2 (2000=100), the highest level since January, 2000, the level of confidence remains almost 6% below that of 2000 while the level in Germany is now some 5% above the 2000 average level.

Business Confidence Mar 06 Feb 05 Mar 05 M/M % or Pct chg Y/Y % or Pct chg 2005  2004  2003  
Germany:  IFO  (2000=100)
  Business Climate 105.4 103.3 93.9 1.93 12.37 95.5 95.4 91.3
  Current Situation 105.1 101.9 92.3 3.14 13.87 94.7 93.1 88.1
  Expectations 105.7 104.9 95.2 0.76 11.03 96.3 97.8 95.6
Italy: ISAE (2000=100) 94.2 92.7 84.9 1.62 10.95 87.5 89.5 88.0
France: General Outlook Manufacturing % Balance  -2.0 -2.0  -5.0  0.0  3.0  -12  -29 
Germany: Business Climate in Mfg % Balance 19.2 14.9 -1.5 4.3 20.7 1.1 4.4 -8.0
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