German companies rate their current business situation at the highest level in more than five years

After a somewhat bumpy start to the new year, the Ifo Business Climate Index improved again in February, rising from 109.9 points in January to 111.0 points. The previous month’s decline has thus been evened out again for the moment. Companies again viewed their current business situation in a far better light than was the case in their January assessment, with the index climbing from 116.9 points to 118.4 points and thereby marking the highest level since August 2011. This compares with the long-term average for the current business situation which lies at 103.5 points, i.e. way below the current level.

The business expectations for the next six months also turned out somewhat more optimistic than in January, improving from 103.2 to 104.0 points. Despite the rising oil price, the approaching Brexit and the possibility of taxes on US imports, industrial companies‘ concerns at the beginning of the year appear to have receded for the time being. However, this last increase was not enough to compensate the previous month’s decline. But the business expectations still lie above their long-term average (100.4 points).

The more upbeat sentiment in February is particularly attributable to the sectors dependent on foreign trade. The wholesalers assessed both their current situation and their business expectations in a far better light, and the business climate in the manufacturing sector is now better than it has been for a long time. The main reason for this positive development is most likely the higher inflow of new orders at the end of last year. Capacity utilization has also risen slightly of late.

The good overall picture was only tarnished somewhat by the sectors focussed on the domestic market. The Ifo business climate in retail and in the construction sector was worse than in the previous month. But in the construction sector in particular, the level is still quite high in the long-term comparison.

The Ifo Business Climate Index is thus currently reflecting the solid state of the German economy. Given that the good framework conditions with low interest rates and a stable labour market are unlikely to change for the moment, 2017 should again prove a satisfactory year for companies.

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