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Economy in Brief

An Improvement In The German Business Climate
by Louise Curley June 22, 2010

The June IFO survey of some 7000 responses of firms in manufacturing, construction and wholesale and retail trade shows a slight improvement in the business climate to 101.8 (2000=100) from 101.5 in May. With the sharp decline in expectations in the financial community revealed earlier this month in the ZEW survey, the consensus had expected a decline. The rise was due to an improvement in the appraisal of current conditions from 99.4 in May to 101.1 in June that outweighed the decline in expectations of economic conditions six months ahead from 103.7 in May to 102.4 in June. The business climate index and its component indexes--the current situation and expectations for the next six months--are shown in the first chart.

In addition to the data in the form of an index, the IFO also publishes the data in the form of percent balances which we show in the second chart. Trends in the index and in the percent balances are similar, but the percent balances indicate whether the increase in the index is due to increased optimism or decreased pessimism. In June the increase in the index for the current situation from 99.4 in May to 101.1 was due to a decline of 3.3 points in the excess of pessimists over optimists. The pessimists on the Current Situation still outweigh the optimists by 1.6%.

Since May 2001, the IFO has been publishing a survey of the service industry based on the responses of some 2000 firms. The data are in the form of percent balances only and are not seasonally adjusted. The percent balances for the Climate, Expectations and Current Situation in the service industries are shown in the third chart. Comparing the second and third charts, we find that the service industry has generally been more optimistic regarding its current situation and expectation than the industrial sector. The excess of optimists over pessimists in the service industries in June was 15.5% for the Climate, 17.0% for Expectations and 14.0% for the Current Situation, compared with 2.8%, 7.4% and -1.6% respectively, for the industrial sector.

Note: The current release from the IFO is preliminary in that much of the detailed data will not be available until Friday of this week.

Germany:IFO Surveys Jun 10 May 10 Jun 09 M/M Chg Y/Y Chg 2009 2008 2007
Industry Survey (SA % Balance)
Climate 2.8 2.4 -28.6 0.4 31.4 -25.2 -7.1 11.5
Expectations 7.4 9.8 -18.1 -2.4 25.5 -0.5 -22.7 -2.7
Current Situation -1.6 -4.9 -38.5 3.3 36.9 -35.9 -14.1 5.3
Service Survey (NSA % Balance)
Climate 15.5 15.0 -5.0 0.5 20.5 -2.5 9.8 22.8
Expectations 17.0 18.0 -1.0 -1.0 18 -1.2 -17.3 3.0
Current Situation 14.0 12.0 -9.0 2.0 23.0 -5.0 18.8 27.2
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