German Business Confidence Strengthens On Expectations

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Germany’s business sentiment strengthened at a record rate in June on strong expectations as lockdown restrictions imposed to slow the spread of the coronavirus were eased across Europe, a closely watched survey showed Wednesday.

According to the ifo Institute, the business climate index rose to a four-month high of 86.2 points from 79.7 points in May, revised from 79.5. Economists had forecast a score of 85.

This is the strongest increase ever recorded, the think tank said. The index rose for a second straight month.

“German business sees light at the end of the tunnel,” ifo President Clemens Fuest said.

Companies’ assessments of their current situation were somewhat better. Moreover, their expectations leaped to a four-month high.

The current conditions index climbed to 81.3 from 78.9 in May. Economists had expected a score of 84.

The expectations measure advanced to 91.4 from 80.5 in May, revised from 80.1. Economists were looking for a reading of 87.

Improvement in morale was witnessed in almost all economic sectors with expectations rising at the strongest rate ever in manufacturing. However, a majority of firms still assess their current situation as poor.

In the service sector, the business climate continued its steep rise driven by a particularly pronounced reduction in service providers’ pessimism regarding the coming six months.

In trade, business climate jumped again as both indicators of the current situation and of expectations recovered notably from the previous month.

In construction, less pessimistic expectations once again lifted the business climate.

Today’s Ifo index adds to the optimism that at least the first phase after the lockdowns will be v-shaped, Carsten Brzeski, an ING economist, said. What comes after the ‘v’, however, is much more uncertain.

Capital Economics’ economist Andrew Kenningham, said, the Ifo for June echoes the message from the PMIs published yesterday that the rebound in Germany has been a little faster, and the slump in GDP probably smaller than anticipated. However, the recession has still been huge and will cast a long shadow.

Purchasing Managers’ survey showed that Germany’s private sector showed signs of a turnaround in June following a record downturn. The flash composite output index climbed to 45.8 in June from 32.3 in the previous month. This was the highest reading in four months.


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