International Finance

Germany’s business index hits record high

The economy has shown improvement despite the absence of any new structural reforms for years

Germany’s ifo Business Climate Index rose from 115.2 points in June to 116.0 points in July, hitting a new record high for the third month in succession. Both the current assessment and expectations of companies have improved. It appears that the German economy is gathering steam on the back of an unexpected industrial revival and stronger investment.

Notably, the economy has shown improvement despite the absence of any new structural reforms for years.

In manufacturing, the index hit a new record high. Manufacturers expressed greater optimism about the short-term future. Capacity utilisation rose significantly by 0.7 percentage points to 86.7 percent, the highest since late 2008.

In wholesaling, the business climate improved again on the back of far more optimistic expectations. But, assessment of the current business situation came down from the record high in June. In retailing, the index dropped. Retailers were far less satisfied with their current business situation. Their optimism about the short-term business outlook is also not encouraging. Nevertheless, at present, they remain at a very high level.

In construction,contractors are happy with their current situation and expect business to pick up in the coming months.

Overall in industry, the combination of strong orders and low inventories is as good as in mid-2006 and late-2010.

But even as the domestic economy gains momentum, factors abroad may pose a few risks — protectionist measures by the US, a weakening of the UK economy in the wake of Brexit negotiations and a slowdown of the French economy.

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