The German IFO Business Climate survey deteriorated anew this month after a hopeful improvement in July. The Business Climate Index eased to 94.6 (2000=100) from July's 95.0; forecasts had called for it to edge upward instead, to 95.2. The August result corresponds to a diffusion index of -11.7, down from July's -10.9.

By sector, wholesale trade, retail trade and manufacturing all declined, while construction managed to firm more than 4 points to -35.6, its best reading since early 2001. Commentators in press reports were most disappointed by the retail trade decline, which was the second in row. June had appeared to be establishing a good positive trend, but this was clearly unsustainable, possibly in the face of rising energy costs. Manufacturing, similarly, looked in July to be recovering from its weakness in Q2, but this did not extend into August. Even so, the -0.7 August figure remains much better than any in Q2.

Overall, companies saw marginal decreases in current conditions, from an index reading of 94.9 in July to 93.8 in August. The expectations component actually had a marginal improvement, to 95.4 from 95.1 in July and 92.9 in June. Thus, while headlines bemoan the negative move in the total, it is small, and companies hardly seem deeply distressed about their future prospects.