German Ifo business climate stabilizes in September, GDP likely to grow 1.8 pct in 2018

The German Ifo business climate dropped marginally in September. The Ifo business climate index fell from 103.9 to just 103.7, as compared with consensus expectations of 103.2. This is notable because the Ifo business climate had risen sharply in the prior month, which many felt was exaggerated, noted Commerzbank in a research report. Like the business climate as a whole, expectations for the coming six months and the current business assessment barely fell in September.

Meanwhile, the Ifo business climate has made up for over half of the fall seen since November. The softness in the sentiment is thus over. A similar picture emerges for the composite purchasing managers’ index. This stabilization of the business climate is mainly linked to the service sector. Confidence in the service sector had rebounded considerably in August, as is affirmed by the September figures. The business climate in the service sector has been at a fairly high level for a long time, which is mainly because of solid domestic demand, which is being boosted by an ECB monetary policy, which is too loose for Germany, stated Commerzbank.

On the contrary, the business climate in the export-oriented industry has not yet rebounded from its fall in the first quarter. The solid strengthening of the euro exchange rate last year is still having a dampening impact. Moreover, the pace of growth of German exports to China has decelerated markedly, probably owing to the issues of China’s economy.

The Ifo business climate’s stabilization for the German economy as a while suggests that the German economy should expand as solidly in the second half of 2018 as the first half of this year.

“The strong domestic economy almost completely offsets the soft patch in the export-oriented industry. For GDP, we continue to expect an increase of 1.8 percent for this year”, added Commerzbank.

At 11:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at 45.6154, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -18.2795. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex