German Business Confidence Holds Steady

The IFO institute reported today that confidence in the German business community was essentially unchanged in March. The headline series, the Business Climate rose 0.1 point from 109.7 (2005=100) in February to 109.8 in March. The appraisal of the current situation was unchanged at 117.4 and that of expectations was up 0.3 points from 102.4 in February to 102.7 in March. The IFO, in addition to showing the data in index form, also shows them as percent balances between those who see improvement less those who see deterioration In terms of percent balances, the appraisal of the Business Climate resulted in and excess of optimists of 12% over the pessimists, a rise of 0.4 percentage points from February. A sharp increase of 6.9 points in the appraisal of the climate in retail trade more than offset declines in the appraisals of the manufacturing climate of 0.3 percentage points, 1.0 in the construction climate and 2.2 in the wholesale trade climate as can be seen in the first chart.

Both the IFO survey of opinions in the business community and the ZEW survey of opinions in the financial community, which are usually released almost two weeks earlier, are reasonably good leading indicators of business trends. They usually exhibit similar trends but the magnitude of month to month changes in the opinions of the financial community are significantly larger than those of the business community as can be seen in the second chart. The latest surveys suggest the economic climate has improved slightly as a result of unchanged current conditions and expectations of improvement in the near future.