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Ifo business climate points to ongoing buoyant growth

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Already upbeat sentiment in the German economy improved further in October. The ifo business climate index notched up a steep 1.4 point rise and now stands at 116.7 points – a new record. This means that prospects are good that the phase of buoyant economic growth will also continue well into next year.

Allianz SE
Munich, Oct 25, 2017

Particularly encouraging about today’s ifo business climate figures is the fact that business expectations have improved appreciably.  The economy was last so upbeat about the future almost seven years ago. In manufacturing and construction in particular, businesses currently view the outlook very favorably.

We do not think that the manufacturing purchasing manager indices (PMIs) published previously by Markit contradict today’s ifo figures. Yesterday Markit reported a minimal drop in the PMI index from 60.6 to 60.5 points.  This leaves the index still well above the threshold that signals an expansion in economic activity. A look at individual sub-components of the PMI is also interesting.  The companies surveyed again viewed the development in new orders (also with regard to exports) and production very positively.  The willingness to take on new staff remains high.

Overall the latest sentiment surveys confirm our view that the economy in Germany will continue to thrive well into next year. To date we have been assuming a slight slowdown in growth momentum in the second half of 2017. The latest figures suggest that this slowdown has become at least less likely. This means that the risks to our current forecast of annual average growth of 2% this year and next are more on the upside than the downside.

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