German Ifo Business Confidence Brightens In March

Business confidence in Germany improved in March on stronger expectations and better assessment of the current conditions, survey results from the ifo Institute showed on Friday.

The business sentiment index rose more-than-expected to 87.8 from an upwardly revised 85.7 in February. The score was forecast to climb to 86.0. Moreover, this was the highest score since last June.

The survey showed that companies’ expectations hit a ten-month high and their assessment about the current situation strengthened.

The current conditions index climbed to 88.1 from 86.9 in the previous month and remained above forecast of 86.8.

Similarly, the expectations index reached 87.5 in March, up from 84.4 a month ago. The reading was expected to rise to 84.7.

“The German economy glimpses light on the horizon,” ifo Institute President Clemens Fuest said.

Although the business sentiment improved sharply in March, much of the increase was in the volatile expectations component and it remained at an exceptionally low level, Capital Economics’ economist Andrew Kenningham said.

The economist observed that the outlook remains very gloomy.

“Stagnant real incomes, the continued drag from high interest rates, weak external demand and tight fiscal policy all suggest that the economy is unlikely to grow much, if at all, over the rest of the year,” Kenningham added.

The business climate improved notably in the manufacturing sector. Companies were considerably more satisfied with their current business and their expectations jumped higher.

Business confidence improved considerably in the service sector as well. This was led by less pessimistic expectations. Service providers assessed their current situation as a little better.

In trade, the business climate index strengthened in March. Trading companies were more satisfied with their current business situation and their expectations were also less pessimistic. Retailers in particular are seeing a ray of hope.

In construction, the Business Climate Index brightened in March. Assessments of the current situation were somewhat better. Their expectations were a little higher from a record low.

“Together with yesterday’s PMI reading, which showed a further weakening in the manufacturing sector but improvements in the services sector, the message is clear: the German economy is bottoming out – but a strong recovery is not in sight yet,” ING economist Carsten Brzeski said.