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Economy in Brief

German Business Confidence Improves--A Big Increase In Confidence In Retail Trade
by Louise Curley February 26, 2008

Germany's business confidence rose, if only slightly, for the second month in a row. The IFO Business Climate Index for industry and trade rose 0.7% in February to 104.1 (2000=100) after having risen 0.4% in January. The increase in confidence among members of the business community follows an unexpected increase in confidence in the financial community earlier this month as reported by the Centre for European Economic Research (ZEW).

In both cases the increase in confidence was due more to a more positive appraisal of current economic conditions that offset a slight deterioration in expectations. The first chart shows the IFO Business Climate Index and its two major components: the appraisal of current conditions and expectations of condition six months ahead.

Among the data released today* are diffusion indexes for the Business Climate for the Manufacturing, Construction, Wholesale and Retail Trade businesses, which are shown in the second chart. The most striking feature of this chart is the positive 18.8 percentage point change in confidence in the retail trade sector. Although the February survey shows only a 1.3% excess of optimists over pessimists in retail trade, this is the first excess of optimists since the early nineties. How much of the change was due to the appraisal of current conditions and/or to expectations will be answered later this week.

GERMAN BUSINESS CONFIDENCE (IFO)  Feb 08 Jan 08  Feb 07  M/M  Chg  Y/Y Chg  2006 2005 2004
Business Climate (2000=100) 104.1 103.4 107.0 0.68 -2.71 103.2 106.5 95.5
  Current Conditions  110.3 107.9 111.5 2.22 -1.08 111.2 108.4 94.8
  Expectations 98.2 99.0 102.7 -0.81 -4.38 101.4 102.7 96.3
Business Climate (Percent Balance)
  Manufacturing 16.3 17.4 23.0 -1.1 -6.8 22.3 19.7 1.2
  Construction                           -24.9 -16.9 -11.8 -8.0 -13.1 -16.2 -15.8 -37.1
  Wholesale Trade 5.8 3.2 16.0 2.6 -10.2 11.0 11.6 -9.8
   Retail Trade 1.3 -17.5 -7.8 18.8 9.1 -6.6 -6.1 -28.0
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