Germany's IFO and EA Business Survey

Measures of confidence in Germany and in the Euro Area, as a whole, were published today.  The IFO in Germany showed a decline in the headline series, the Business Climate to 103.3 (2005=100) in July from 105.2 in June. At the same time, Current Conditions declined to 111.6 from 113.9 and Expectations six month ahead declined to 95.6 from 97.2.  Current Conditions, Expectations and Business Climate are shown in the first chart.  The decline was sharpest in Manufacturing where the index fell to 96.7 from 100.0.  Construction declined to118.7 from120.0 and Wholesale Trade declined to 106.9 from 107.4.  The only bright spot was a rise in the index for Retail Trade that increased to120.3 from 117.5, as can be seen in the second chart.

The Economic Commission's Monthly Business and Consumer Survey of  the Euro Area also declined in July.  The Economic Sentiment Indicator is expressed in two ways:  1) in standard deviation points and 2) as an index that has a long term average of 100.  Values above 100 indicate above average sentiment and those below 100 indicate a below average sentiment.  The two series are highly correlated as can be seen in the third chart.   The index form of Economic Sentiment was 87.9 in July compared with 89.9 in June, indicating an increase in below average confidence.  .  The components of the Economic Sentiment Indicator are:  industrial confidence (40%, Service confidence, 30%, Consumer confidence, 20%, Construction confidence, 5% and Retail Trade Confidence.  All fell in July.  

Confidence in Germany and in the Euro Area, as a whole, has obviously been affected by the Euro crisis.  Confidence tends to follow the good or bad news on the fate of the Euro.  Bad news from Spain, Italy and Cyprus in July may  have contributed to the decline in July.  More recent positive news from the ECB may halt the decline.  The news has, at least, led to a rise in the stock markets of Spain, Italy, Portugal and even Greece, among others in the last few days. as shown in the fourth chart.