Ifo Business Climate Survey
What Is the Ifo Business Climate Survey?
The Ifo Business Climate Survey is a leading indicator of German economic activity, incorporated by the Munich-based Ifo Institute for Economic Research.
Germany is the fourth-biggest economy in the world and the biggest in Europe, so this month to month measure of the country's business environment and expectations is closely watched by [economists](/financial analyst) and [investors](/financial backer) across the globe.
Understanding the Ifo Business Climate Survey
The Ifo Business Climate Survey is based on around 9,000 month to month survey responses from German firms in manufacturing, construction, the service sector, and trade. The companies surveyed are approached to give feedback on whether their current business situation is great, acceptable, or poor as well as evaluate their expectations for the next six months as either better, unchanged, or more unfavorable.
The responses of the firms are weighted by the economic significance of every industry, and a net balance is calculated for every assessment: great/poor for the current situation and better/more unfavorable for the standpoint — the "palatable" and "unchanged" responses are viewed as neutral and consequently excluded.
The business climate itself, the fundamental subject of the survey, is then calculated as the mean of these two balances. The outcome is developed to yield outcomes between - 100, expecting each firm gives a negative response to the two inquiries, and +100, meaning each firm gives a positive response to the two inquiries.
The headline survey number that is delivered is, in any case, recalculated as an index, which will be set to 100 in a base year. The base year currently being used is 2005.
Application of the Ifo Business Climate Survey
The Business Climate Survey is expected to act as a leading indicator of economic cycle defining moments in the German economy. Businesses, investors, and policymakers track the index to plan for future economic activity, prepare for changes in demand, or actually answer economic slumps.
When the index hits a provisional cyclical high or low point, three successive months of movement in the new heading is considered to characterize another economic trend into the next phase of the business cycle. For instance, the index arrived at a cyclical top in December 2006, giving minimal over an extended period of advanced notice before Germany officially followed the global economy into the Great Recession in 2008.
German business confidence averaged 98.12 index points from 1991 until 2019, hitting an all-time high of 109.80 in January 1991 and a record low of around 76 in April 2020 in the midst of the global COVID-19 pandemic. Starting around 2021, the index has returned to around its long-run average.
Special Considerations
The Ifo Business Climate Survey is seen as a barometer of the German economy as well as the whole EU's too. Germany accounts for in excess of a quarter of the coalition's output and is the number one trading partner for the vast majority of its European neighbors.
Germany's status as the engine of the European economy means its wellbeing likewise has a big bearing on the heading of the euro (EUR) currency. Foreign exchange (forex) traders, hence, will more often than not keep a careful eye on business sentiment in the country too.
Highlights
- Germany is the fourth-biggest economy in the world and the biggest in Europe, so the survey's readings are closely checked by financial specialists and investors across the globe.
- Results are based on approximately 9,000 survey respondents from German firms in manufacturing, construction, the service sector, and trade.
- The Ifo Business Climate Survey measures the state of Germany's business environment consistently.
