German IFO business climate figures come in short of expectations

Indicators for business in Germany are worse than expected with the IFO business climate coming in at 107.7 for September, up from 107.6 (revised from 107.5) in August and following expectations of 108.2. Despite the decline, the index remains at its highest since April 2012. IFO current assessment came in at 111.4 after expectations of 112.5 and August's figure of 112.0.

The index measures current business conditions and expectations in Germany.

Hopes for the future, measured by the IFO expectations index, were at 104.2 for September, up from the expectation of 104.0, following 130.0 in August.

Ben May of Capital Economics says:

The further rise in German Ifo business sentiment confirms that the economy is recovering, but we continue to expect growth to be reasonably sluggish.

The current conditions index fell, partially reversing the previous month’s gain. On past form, the BCI points to annual GDP growth of around 2%, compared to Q2’s 0.5%, suggesting that further strong quarterly gains in GDP are on the cards in the second half of this year. But note that the index has recently over predicted actual GDP growth and other surveys like the PMI paint a less upbeat picture.

The sharp fall in industrial production in July also suggests that the Ifo survey overstates the near-term prospects for growth. The upshot is that we still to expect GDP growth to pick up from about 0.5% this year to just 1.0% or so in 2014.