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Economy in Brief

No Surprise: German Ifo's Business Climate Indicator Continues To Decline
by Louise Curley October 27, 2008

It is no surprise, given the world economic turmoil that German firms have become increasingly pessimistic regarding their economic outlook. The IFO Business climate indicator fell 2.9% to 90.2 (2000=100) in October from 92.9 in September. The indicator is now approaching the lows last reached in 2001 and 2002.The Business Climate Indicator is based on the responses of some 7000 firms in the manufacturing, construction, wholesale and retail trade industries to questions regarding current conditions and expected conditions over the next six months. In the current survey, the index for current conditions increased minimally by 0.1%,while the index for expectations declined 5.9%. The indexes for the business climate, current conditions and expectations for the next six months are shown in the first chart.

In addition to the indexes, the data are also shown as percentage balances of good versus poor for current conditions and more favorable versus less favorable for expectations. The percentage balances for the business climate in the manufacturing, construction, wholesale and retail trade industries are shown in the second chart. All the indicators have been declining since the sub prime problem arose in the United States in the Fall of 2007, but the declines in manufacturing and retail trade appear to have accelerated in the past few months.

GERMANY IFO BUSINESS CLIMATE  Oct 08 Sep 08  Oct  07  M/M %chg  Y/Y  chg  2007 2006 2005
INDEXES  (2000=100)
  Climate 90.2 92.9 104.1 -2.91 -13.35 106.2 105.4 95.5
  Current Conditions 99.9 99.8 109.7 0.10 -8.93 111.2 108.4 94.7
  Expectations for Next Six Months 81.4 86.5 98.8 -5.90 -17.61 101.4 102.7 96.3
PERCENT BALANCES (%)  Pt chg
Industry -20.2 -14.9 7.5 -5.3 -27.7 11.6 10.2 -9.6
  Manufacturing -18.9 -11.9 18.4 -7.2 -37.3 22.4 19.8 1.3
  Construction  -27.6 -25.2 -20.3 -2.4 -7.3 -16.1 -15.8 -37.0
  Wholesale Trade -15.1 -10.3 2.6 -4.8 -17.7 11.1 11.7 -9.8
  Retail Trade -25.0 -24.1 -6.4 -0.9 -18.6 -6.5 -6.0 -28.0
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