Ifo business climate index for Germany rebounds strongly in June, rises above expectations

The Ifo business climate for Germany rebounded unexpectedly and strongly in June. The Ifo index rose to 86.2, as compared with consensus expectations of 85. As in the previous month, the rise is mainly driven by significantly better business expectations. The corresponding index rose from revised 80.5 to 91.4. Meanwhile, the assessment of the current situation rebounded comparatively moderately from 78.9 to 81.3.

On first glance, the slump and recovery of the business climate are reminiscent of a V. The purchasing managers’ indices in the euro area and China and U.S. retail sales also seem to be following this pattern. In the weeks ahead, investors might come to the conclusion that a V-shaped upswing is taking place after all, although like many economists, such a positive economic scenario is not expected, said Commerzbank in a research report.

“If the business outlook brightens due to the ebbing of the pandemic, many companies tell the Ifo Institute that their business situation is "rather more favorable" in the coming six months. In contrast, only a few companies will assess their future business situation as even "less favorable" after the past slumps”, stated Commerzbank.

Accordingly, the Ifo business climate is rebounding strongly, based on the difference between optimists and pessimists. Moreover, “hard” indicators such as industrial production or new orders are also expected to have risen strongly at least in May and June, as U.S. economic data for May have already shown.

“After this initial spurt, the upward movement should slow down in the second half of the year; the right leg of the V will flatten out. The square root symbol still best describes our economic picture”, said Commerzbank.