1. The Ifo Business Climate Survey is a leading indicator of German economic activity, compiled by the Munich-based Ifo Institute for Economic Research.
2. The ifo Business Climate Index is a highly-regarded early indicator of economic developments in Germany published on a monthly basis. Detailed results of the ifo Business Survey are published in the ifo Konjunkturperspektiven (in German).
3. The companies surveyed are asked to provide feedback on whether their current business situation is good, satisfactory, or poor as well as assess their expectations for the next six months as either more favorable, unchanged, or more unfavorable.
4. The responses of the firms are weighted according to the economic importance of each industry, and a net balance is calculated for each assessment: good/poor for the current situation and more favorable/more unfavorable for the outlook—the "satisfactory" and "unchanged" responses are regarded as neutral and thus not included.
5. The Ifo Business Climate Survey is based on approximately 9,000 monthly survey responses from German firms in manufacturing, construction, the service sector, and trade.
6. The business climate itself, the main subject of the survey, is then calculated as the mean of these two balances. The outcome is constructed to yield outcomes between –100, assuming every firm gives a negative response to both questions, and +100, meaning every firm gives a positive response to both questions.
ELEMENTS
1. The responses to the survey questionnaire, described below, are evaluated and seasonally adjusted. An index value of 100 corresponds to the survey data as of 1 January 2005. Since January 1991 more than 200 data sets have been published.
2. Three data series are compiled from the raw survey data:
- business climate
- current business situation
- business outlook
3. The business climate itself, the main subject of the survey, is then calculated as the mean of these two balances. The outcome is constructed to yield outcomes between –100, assuming every firm gives a negative response to both questions, and +100, meaning every firm gives a positive response to both questions.
4. These three components are published as the percentage change over the previous month and as the absolute value with regard to the index reference data, 1 January 2005 = 100. Given the growing importance of the services sector in Germany, Ifo changed the business climate indicator in 2018 to rebase the index and include responses from the services sector in its calculations.
5. Often the results are depicted in the form of a "business-cycle clock".
PROCEDURES
1. Every month approximately 7,000 survey participants from firms in manufacturing, construction, wholesaling and retailing are requested to assess their current business situation as well as their business outlook for the coming six months. The Ifo Business Climate has been released monthly by the Ifo Institute since 1972.
2. Questionnaire- The firms are queried as to
- their current business situation, with the following choices
good, satisfactory, poor
- their six-month business outlook, with these three choices
more favorable, unchanged, less favorable
EVALUATION METHOD
1. The balance value of the current business situation is the difference in percentage shares of the responses "good" and "poor"; the balance value of the expectations is the difference in percentage shares of the responses "more favorable" and "less favorable".
2. The business climate is a geometric mean of the balances of the business situation and the business expectations. To calculate the business climate index value, the transformed balances are normalized to the average of the year 2015.
3. As an indicator of economic activity, the Business Climate Index is meant to supplement data from the official statistics, over which it has the advantage of being more frequently compiled and more rapidly accessible (GDP, for example, is only released quarterly and published with a delay of ca. two quarters, with the likelihood of subsequent revisions).
4. The particular importance of the Ifo Business Climate Index is forecasting turning points in economic growth. A cyclical turning point is reliably indicated following the "three-times rule", that is movement in a particular direction three months in succession.
5. It is intended to serve as a leading indicator of economic cycle turning points in the German economy. Businesses, investors, and policymakers track the index in order to plan for future economic activity, prepare for changes in demand, or effectively respond to economic downturns.
HIGHEST AND LOWEST VALUES
1. The particular importance of the Ifo Business Climate Index is forecasting turning points in economic growth. A cyclical turning point is reliably indicated following the "three-times rule", that is movement in a particular direction three months in succession.
2. The all-time high of the Ifo Index was reached in December 2010 with 109.5 index points, surpassing the previous record high of 108.8 points in December 2006. In March 2006 the surveyed firms gave the best-ever appraisals of the business outlook, with an index value of 105.3.
SPECIAL CONSIDERATIONS
1. The Ifo Business Climate Survey is viewed as a barometer not just of the German economy but the entire EU's as well. Germany accounts for more than a quarter of the bloc's output and is the number one trading partner for many of its European neighbors.
2. Germany's status as the engine of the European economy means its health also has a big bearing on the direction of the euro (EUR) currency. Foreign exchange (forex) traders, therefore, tend to keep a careful eye on business sentiment in the country as well.
Source:
https://www.investopedia.com/terms/i/ifo-business-climate-survey.asp
https://en.wikipedia.org/wiki/Ifo_Business_Climate_Index
