In September, the German IFO business index fell to 107.5 (a 15-month low) from 108.7 reported for August, with the decline having been less pronounced than was widely feared (market estimate: 106.5, BarCap: 108.5). The IFO current assessment fell to 117.9 from 118.1 a month ago (market estimate: 115.7, BarCap: 118.1), while the expectation index fell to 98.0 from 100.1 a month ago (market estimate: 97.3, BarCap: 99.5).
Looking at the sector breakdown, the business climate in trade & industry sector fell to 7.5 in September from 9.8 in August. Manufacturing declined to 10.6 from 15.5 earlier, and construction fell to -9.9 from -6.5. The business climate in wholesale trade rose to 13.1 from 7.1 a month ago, and retail trade was up 2.9 from 1.5 earlier.
Clearly, the ongoing uncertainty in global financial markets should have translated into a dampening effect for corporate sentiment, and this trend can be expected to continue in the coming months, we think. On the positive side, the IFO has remained at a fairly elevated level so far, and we remain confident that Q3 growth could still be 0.3% q/q after the lacklustre 0.1% q/q gain seen in Q2. Note that our real GDP forecast for the German economy is 2.9% y/y in 2011 and 1.3% y/y in 2012.
BARCLAYS CAPITAL
ECONOMICS RESEARCH | INSTANT INSIGHTS