Ifo Business Climate Index

The Ifo Business Climate Index is an internally generated by the Ifo Institute for Economic Research softer monthly leading indicator of economic development in Germany.

Elements

The Ifo Business Climate is published regularly since 1972 by the Ifo Institute for Economic Research. The answers obtained from the questionnaires will be in accordance with the Company size weighted (that is, the response of a large company has more ) and in consultation with the industry weights in German GDP aggregated ( ie, the result in the automotive sector is one more example, as the result in a for Germany less important industry, such as the garment industry ). The Ifo Business Climate is calculated as the geometric mean of the results to the questions " Current business situation " and " business expectations ". The business climate index is determined from the business climate. This is a simple indexing: the current business climate is set in relation to the business climate in 2005 and assumes the latter an index value of 100 is based.

Sometimes the economic situation is also represented in the form of a Business Cycle.

Current figures and graphics as well as the complete time series are regularly published on the website of the Ifo Institute.

Method

The questionnaires are sent out in the first week of each month to manufacturing enterprises, construction, wholesale and retail trade. The companies will, among other things asked to assess their current business situation and their expectations for the next six months. They can characterize their situation as "good ", "satisfactory " or "poor" and their business expectations for the next six months "more favorable" than, "unchanged " or " more unfavorable". Middle of the month to get the company a reminder, if they have not yet responded. Until the eve of the publication of the Ifo index, usually in the last week of the month, companies may make the questionnaires. Usually 7000 messages from the company are evaluated.

Questionnaire

The sheet consists of a total of about 20 questions. The company will, inter alia, questioned

  • Their current business situation ( choice: good, satisfactory or poor)
  • Their business expectations for the next six months ( choice: cheaper, steady or unfavorable )
  • The demand situation ( choice: improved, not changed or impaired )
  • Their number of employees ( choice: increasingly, constant, decreasing )

Calculation method

The balance value of the current business situation is the difference of the (weighted) percentages of the responses "good" and "bad", the balance value of the expectations is the difference of the (weighted) percentages of the responses "more favorable" and " unfavorable ". The business climate is a geometric mean of the balances of the business situation and the expectations. To calculate the index value, the business climate on the average of the base year (currently 2005) is normalized.

Interpretation

The Index is a leading indicator of economic development in Germany. The advantage compared to the official statistics is that he will be charged frequently and is more readily available ( for example, GDP is only collected and published on a quarterly basis with a delay of about two quarters subject to change). In addition, the business climate index subject - as opposed to amtl. statistics - no revisions.

Due to the limited scope of the data collected (eg, the proportion of the industries covered by the Ifo Institute was on the GDP in 1998 only about 35%) he buys its advantages, however, by a fierce compared to data such as GDP less reliability.

He has particular importance in predicting trend reversals in economic growth. A turnaround in the economic development is high security only after a three-time knocking out the business climate indicator expected in that direction according to the so-called three times rule ( see: MCD- measure / months of cyclical dominance ).

In a comparison between the indices and the GDP here the rates of change of the indices and rates of change of the previous year 's GDP are used. The correlation coefficient between ermitteltem business climate and rates of change of GDP is then about 0.7. A value of 0.7 indicates that 49 % of the variation in GDP can be determined by the Business Climate Index.

The business expectations resulting in direct comparison with the GDP, a coefficient of 0.6. If one shifts the values ​​of the index by one period in the past in order to assess its forecasting ability, the coefficient rises to 0.65. Consequently, the information of the companies expected to have a lead relative to the actual economic development.

The business judgment has from the published indexes the lowest correlation with GDP development: only when one moves the values ​​of the index a quarter in the future, the correlation is at an acceptable level at 0.66. This means that the index has a lag of about six months.

Records and Averages

Its lowest value in the unified Germany, the index reached after the applicable since May 2011 Classification of Economic Activities and weighting 84.6 points ( 2005 = 100) in December 2008. Also in December 2008, an all-time low was in the sub-indicator business expectations with 78.5 points achieved. The second part of the business situation indicator recorded in May 1993 with 84.0 points the hitherto lowest level

The all time high in the ifo index was reached in February 2011 with 115.4 index points, thus slightly exceeding the maximum value from the previous economic cycle in December 2006 ( 113.6 points). With the partial indicator business assessment of the historical maximum value was measured in June 2011 with 123.3 points, according to 121.2 points in December 2006. In February 2011, the Company assessed the development of their future business situation ( partial indicator of business expectations ) with an index value of 110.7 as good like never before.

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