German Ifo business climate rises strongly in August, GDP likely to grow significantly in H2 2018

German Ifo business climate rose surprisingly in August. The business climate index rose to 103.8 from 101.7, as compared with consensus expectations of 101.8. The headline index was mainly driven by business expectations, which rose to 101.2; however, the assessment of the current business situation also came in better at 106.4.

The sharp rise in August covered for more than half of the losses suffered by the Ifo business climate since December last year, noted Commerzbank in a research report. Therefore, the soft patch of the Ifo business climate is over. This is consistent with the German composite purchasing managers’ index, which rose for the third consecutive month. In the Ifo business climate, the positive signs in August came mainly from the services sector.

The services sector’s business climate has been fluctuating at a high level for years and is now back at the upper end of its band after falling in recent months. Eventually, the services sector is advancing from solid strong domestic demand, which is being boosted by the ECB’s monetary policy, which is too loose for Germany.

The business climate rebounded just slightly in August, in the trend-setting manufacturing sector, mainly because the appreciation of the euro, which has risen 8 percent year-on-year against the currencies of its most significant trading partners, is still having an effect. Within the industrial sector, only business expectations for the next six months rose in August, which might be because of the easing of the trade dispute between the U.S. and the EU.

The decline of the Ifo business climate appears to be over. Thus, the hard economic data, such as incoming orders, which have declined considerably to date, should stabilize in the months ahead.

“GDP will continue to grow substantially in the second half of the year. For 2018 as a whole, we continue to expect growth of 1.8 percent”, added Commerzbank.

At 12:00 GMT the FxWirePro's Hourly Strength Index of Euro was highly bullish at 153.757, while the FxWirePro's Hourly Strength Index of US Dollar was highly bearish at -126.814. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex