German business sentiment improves but expectations deteriorate - Ifo
German business confidence improved a little in September but expectations among executives deteriorated, according to a widely-followed survey released on Tuesday.
The Ifo business climate index rose to 94.6 from 94.3 in August, coming in just above consensus expectations for a reading of 94.5.
Meanwhile, the current assessment index ticked up to 98.5 in September from 97.4 the previous month, surpassing expectations of 97.0.
However, the expectations index fell to 90.8 from 91.3, missing expectations of 91.8.
The sub-index for the manufacturing sector came in at -6.4 compared to -6.0 in August, while the gauge for the services sector rose to 16.6 from 13.0. The construction index nudged up to 22.2 from 21.5 and the trade index printed at -3.7 from -2.4.
Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said this is a much welcome rebound but the details weren't uplifting. Given the slide in the expectations index, Vistesen said he wasn't putting much emphasis on the rise in the current assessment index.
"We always have to be careful fitting stories to these data, but it looks to us as if the European Central Bank's recently announced measured have succeeded in providing a modest lift to the current assessment, while expectations are still hampered by unchanged, and elevated, global uncertainty.
"Time will tell whether the central bank’s new policy announcements can lift sentiment further. Across sectors, the manufacturing sentiment index fell further, albeit marginally, while the services index rebounded, in contrast to the dip in the PMI. The construction confidence index rebounded too, though also slightly."
Andrew Kenningham, chief Europe economist at Capital Economics, said the small increase in the business climate index leaves it a very low level and means the German economy still probably entered recession in the third quarter.
"Coming hard on the heels of the slump in the Composite PMI for September, released yesterday, the small improvement in the Ifo business climate index will be a relief for German policymakers. However, at 94.6, the reading is still consistent on past form with the economy contracting. And the breakdown shows that while the current conditions index improved, the more forward-looking expectations component fell.
"The prolonged weakness of the German economy, and particularly the manufacturing sector, will keep the pressure on policymakers in Berlin to heed Mario Draghi’s call for looser fiscal policy. We suspect, however, that any fiscal boost will be too timid to make much difference to the outlook. It now looks likely that Germany will experience a technical recession this year and we expect the economy to do no more than flat-line until well into next year."