Ifo Business Climate Survey: A Key Indicator in the European Union Economy

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We’ve already discussed this Ifo Business Climate Survey in our prior article, but now we’re going to talk about this topic in a deeper way. So, let’s start then.

The Ifo Business Climate Survey is a main survey that’s released on monthly basis. It measures the business climate in Germany and broadly known as an early indicator of the state of German economy. The survey is conducted across approximately 7,000 companies in the manufacturing, building, wholesale and retail sectors. Why Germany? It’s because this country has the largest economy all around the European Union and its business weather will influence the rest of the EU.

The 7,000 firms included in the survey are asked to provide their assessments of the existing business conditions and their expectations for the next six months. So, the survey consists of three data series below:

  • business climate
  • current business situation
  • business outlook

These three components are released as the percentage change over the previous month and as the value with regard to the index orientation data, 1 January 2005 = 100. The balance value of the present business situation is the difference in percentage shares of the answers “good” and “poor” and the balance value of expectations is the difference in percentage shares of the answers “more favorable” and “less favorable”.

The Ifo Business Climate index survey is a key indicator that is meant to add-on the official reports. Investors get the benefit from this report because it’s more frequently compiled and more quickly accessible other reports such as GDP. By using this report, investors are able to forecast the revolving points in the economy development. A higher than forecasted figure means a positive trend (bullish) for the EUR and lower than expected figure in business climate index should be taken as negative trend (bearish) for the EUR.

The Business Climate balance point can take values from -100 until +100. In March 2009, the index reached its lowest value with 82.2 points while the highest value was in December 2010 with 109.5 index points. The best appraisal was in March 2006 with 105.3 index points.

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