ifo Business Climate: companies relying on successful negotiations

Faced with the ever-increasing risks of a trade conflict, the mood among German companies is still surprisingly calm. The ifo Business Climate Index declined further in July, but only minimally, and now stands at 101.7 points compared with 101.8 points in June.

The indicator for the current business situation has even improved slightly compared with the previous month, while business expectations remain in a downward trajectory and are now as low as they were almost two and a half years ago. In the past, a large spread between a positive assessment of the situation and relatively sceptical expectations was often a warning sign that could indicate an impending economic slowdown.

Current surveys reveal, however, that the mood on the German executive floors is still generally upbeat. This is also due to the fact that business is still ticking over exceptionally well in the more domestic-oriented sectors, especially in the construction industry where companies are currently inundated with orders.

But many industrial companies are also evidently working on the assumption that negotiations will still manage to avert an escalation of the trade conflict with the USA. The chances of this happening ought to be viewed in a more sceptical light. For if the negotiations prove unsuccessful and the USA do actually impose punitive duties on European car exports, a palpable deceleration in economic activity will most likely be the outcome.

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