German Business Climate Weakens

The German IFO business climate index fell  in September to 101.4 (2005=100) from 102.3 in August. It was for the fifth straight month of decline.  The climate is determined by current conditions and expectations, both of which declined.  The former from 111.1 in August to 110.3 in September and the latter from 94.3 in August to 93.2 in September.  The indexes of the Business Climate, Current Conditions and Expectations for the next six months are shown in the first chart.  Economists had generally been looking for an improved climate due to better expectations as a result of the European Central Bank President Draghi's determination to save the Euro with, in part, an unlimited, though conditional, program of bond purchases.  Expectations the financial community represented by the ZEW index  had earlier become less pessimistic about the next six months as a consequence of Draghi's announcement.  The business community, however, appears to be more skeptical than the financial community.  

This was not the first time that the business and financial communities differed in their expectations for the next six months.  The second chart shows the expectations of the financial community, as reported in the ZEW survey and the expectations of the business community as reported in the IFO survey.  The data are shown in terms of percent balances.  Opinions in the financial community tend to be much more volatile than those in the business community or, to put it another way, opinions in the business community are slower to change than those in the financial community.   In spite of the improvement in the expectations of the financial community,  there are still 18.2% more pessimists than optimists, while in the business community, there are slightly fewer, 16.9%, pessimists over the optimists.