Ifo Business Climate index reaches new all-time high, a contraction in the coming months would be insignificant

Morale among Germany companies has never been so good as it is at present. After two slight contractions over the past two months, the ifo Business Climate index touched a new all-time high in October and rose to 116.7 points (September. 115.3 points). The Current Business Situation component climbed from 123.7 points to 124.8 points. Business Outlook is up from 107.5 points in the previous month to 109.1 points at present, the highest value since December 2010. The very good sentiment values were present across almost all economic sectors. New record values were also posted in the manufacturing and construction industry. Capacity utilisation also continued to rise.

The Business Climate has held steady for a number of months now at a very high level. German companies are also not perturbed by the prospect of the so-called Jamaica coalition in Berlin. An improving international economy, still extremely low interest rates, stable domestic demand coupled with moderate cost performance continue to provide excellent framework conditions for companies.

In the coming months, we could see downward movements from these achieved record values without any particular reason. However, a contraction in leading indicators would not necessarily mean an end to the upswing in Germany. Rather, it would point to a normalisation in sentiment indicators without palpable consequence for the real economy. Or put more clearly:
The German economy is booming

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