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The December IFO business climate indicator came in lower than expected at 108.7 as the assessment of the current economic situation declined (down to 112.8 from 113.4) and business expectations remained stable (at 104.7). The reading is in line with the slight drop in the flash PMI for December that was reported yesterday.
The Business climate in the manufacturing sector edged up slightly to 12.3 from 12.1 in November, consistent with an upward revision in production plans, while the assessment of the current situation declined marginally. This trend is in line with the December PMI release, which indicated a slight jump in Manufacturing PMI to 53.0 from 52.9 and a modest decline in the flash Manufacturing Output Index (from 54.2 to 54.0).
This survey assessment of the current situation indicates a similar directional move to the recent weak industrial production outturns, but of significantly smaller magnitude. Both wholesale and retail sectors marked a decline in the business climate, from 15.1 to 11.8 and from 8.2 to 7.3, respectively. A decline is also registered in the construction sector after a record outturn of 2.4 in November, now down to 1.8, where pessimistic expectations clearly outweigh the current positive situation due to warm weather.
The IFO business climate balance for the services sector hit another record high, edging up slightly to 33.7 (December) from 33.6 (November). The assessment of the current situation in services remained upbeat (at 42.8 in December, up from 40.4 previously), suggesting that activity in the service sector continued to gain traction while business expectations declined (down to 24.9 from 26.9).
the IFO survey suggests a slight deterioration in the assessment of the current situation and, while smaller in magnitude than the weak industrial production reading of November, this is in line with the slowdown in global trade. Future business expectations, however, remain stable.
"We expect real GDP to continue expanding at the same pace as in the previous quarter in support of our overall forecast of 1.5% for 2015",says Barclays.
