German Sept business climate index beats forecasts, hits highest level since May 2014

The German economic sentiment improved markedly in September, beating economists' forecasts. Data released by the Munich-based Ifo economic institute showed that its business climate index rose to 109.5 in September, reaching its highest level since May 2014. That was stronger than the Reuters consensus forecast for a reading of 106.4. The index reading compared to 106.3 in the previous month (revised from 106.2).

"The reading showed that companies are clearly more optimistic about the months ahead. They are also more satisfied with their current business situation. The German economy is expecting a golden autumn," Ifo head Clemens Fuest said in a statement.

There was an improvement in the current conditions index to 114.7 from 112.9 in August with the expectations index advancing to 104.5 from 100.1 previously and both elements were also notably stronger than the consensus forecast. Significant improvement was seen across all sectors with the strongest improvement in manufacturing, which rose to 13.3 from 6.4 previously as the expectations component improved sharply.

The index rose in both wholesaling and retailing after marked declines in recent months. Increases were seen in both sub-components. In construction the business climate indicator continued to soar, hitting a new record high. Assessments of the current business situation reached an all-time high and are even expected to improve further in the months ahead.

"After the sharpest monthly increase since July 2010, German businesses has left analysts almost clueless as with the highest reading since May 2014, the prominent Ifo index suggests that Brexit fears have disappeared as quickly as they had emerged," said Carsten Brzeski, Chief Economist at ING.

The single currency saw renewed buying interest after the upbeat data. EUR/USD was 0.14 percent higher on the day, while EUR/GBP was 0.40 percent up as of 09:00 GMT.

"Today’s Ifo reading gives lots of food for thought about the real state of the German economy. Whether the strong reading is the start of another golden economic fall or just a flash in the pan is too early to tell.” Brzeski added