The Ifo Business Climate index for Germany in July showed an improvement, bolstered other data about a stronger economy in the European Union’s largest economy by gross domestic product (GDP). Markit released PMI data that also showed a sharp improvement in the GDP.

Overall, the picture of Germany remains very different from the balance of Europe. Germany, as a matter of fact, may have a healthier economy than the United States, China or Japan — the other largest economies in the world, at least based on historic standards. China may be the nation with the best performance over the past two decades. Its current slowdown, therefore, demonstrates remarkable weakness. Germany, on the other hand, should be in a recession because of the size of its financial and trade relationship with the rest of Europe.

The Business Climate Index reached 106.2 in July, up from 105.9 in June, and 103.2 in the same month a year ago.

According to the release:

The Ifo Business Climate Index for industry and trade in Germany rose for the third time in succession. Assessments of the current business situation are more positive than last month. Although the six-month business outlook weakened slightly, firms remain cautiously optimistic with regard to their future business outlook. Conditions in the German economy remain fair.

The business climate indicator in manufacturing rose slightly. Satisfaction with the current business situation increased for the third month in succession. Business expectations declined minimally, but remain positive. Machinery capacity utilisation rose by more than one percentage point. After last month’s sharp in-crease, export expectations fell somewhat. Firms nevertheless expect expansionary impulses from export business.

The business climate index rose at both levels of trade. In retailing firms are far more satisfied with their current business situation. Expectations reached their highest level since April 2012. Wholesalers also assessed their current business situation more positively than last month. However, they were more sceptical about future business developments.

In construction the business climate indicator continued to fall. Contractors are slightly more cautious about future business developments than last month. They are also somewhat less positive about their cur-rent business situation, which nevertheless remains very good.

Kai Carstensen
Director of the Ifo Center for Business Cycle Analysis and Surveys

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