German Business Confidence Increases

Surveys of business confidence provide an insight into future trends concerning purchasing, employment and investment since businesses will not make new commitments unless they believe that likely future profitability warrants it. Given the fact that the German economy is the largest in the European Union, German business confidence figures are scrutinised particularly keenly.

The latest Ifo survey of business confidence (industry and trade), for November, shows an improvement from 107.4 in October to stand at 109.3. The survey is conducted on a monthly basis and is based on responses from 7000 businesses drawn from the manufacturing, retailing, wholesaling and construction sectors. The index is normalised to the year 2005 (value of 100) and stands at its highest level since spring 2011.

The business confidence survey excludes the service sector, which is reported on separately. According to Ifo, the indicator rose “considerably” for construction and manufacturing. Manufacturers are more optimistic with the expectation that exports will strengthen. Construction has rebounded from seven months of declining business climate figures, but the sectors optimism is more subdued than for manufacturing; however contractors are more bullish about their business outlook. The retailing and wholesaling (trade) sectors optimism in the current situation is largely unchanged, but both sectors are increasingly optimistic about future prospects for the next six months.

The German economy managed modest growth of 0.3% in Q3 and is predicted to produce full-year growth of 0.5%. Domestic demand is said to be strengthening, up by 0.7% in the third quarter. Preliminary data from the Markit PMI survey for November is expected to come in above expectations at 54.3 (compared to the October figure of 53.2), adding strength to the suggestion that business confidence in Germany has turned Bullish.