Germany Ifo Index Rises Again in April, But Only Slightly as Expectations Weaken

26 April 2021

By David Barwick – FRANKFURT (Econostream) – German business confidence rose weakly in April as the expectations component of the Ifo business climate index turned down, economic research institute Ifo said on Monday.

The German Ifo business climate index rose 0.2 point, the third monthly increase, to 96.8. However, while companies surveyed were happier about their current situation, their expectations for the next six months became less optimistic, the institute said.

‘Both the third wave of infections and bottlenecks in intermediate products are impeding Germany’s economic recovery’, the institute remarked.

In the manufacturing sector, where the business climate subindex rose to a three-year high, firms reported ‘greatly improved business’ and ‘still very good’ demand, Ifo said. ‘However, optimism declined with regard to expectations’, it said, as 45% of firms – the most in 30 years - reported experiencing bottlenecks with regard to intermediate products.

Capacity utilization among manufacturers increased from 81.9% to 86.2%, above the measure’s long-run average of 83.5% for the first time in almost two years.

In the service sector, the business climate was less positive, as companied were a bit less happy about the current situation and less optimistic. ‘While the logistics industry is benefiting from the upswing in manufacturing, other industries are still suffering, in particular hospitality and tourism’, Ifo commented.

In trade, the business climate improved a little on ‘significantly improved assessments of the current situation, especially among car dealerships’, despite ‘much greater pessimism regarding the coming months’, Ifo said. Wholesalers were more satisfied than retailers.

The construction sector meanwhile saw less satisfaction with the current situation and scepticism about the future, Ifo said, with many firms reporting shortages of construction materials.