ifo business climate index
The ifo business climate index is a soft leading indicator for the economic development in Germany produced monthly by the Ifo Institute . For Germany, the indicator is the best-known and most widely observed business climate index .
elements
The ifo business climate index has been published regularly since 1972. It is based on the Ifo Business Survey, a monthly survey of German companies on their current economic situation, its recent development and the expected development for the coming months. The answers obtained from the questionnaires are weighted according to the size of the company (i.e. the answer from a large company counts more) and aggregated using the sector weights in the German GDP (i.e. the result in the automotive sector counts more than, for example, the result in a Germany's less significant industry, such as the clothing industry). The Ifo Business Climate is calculated as a geometric mean value from the results of the questions “Current Business Situation ” and “Business Expectations”. The business climate index is determined from the business climate. This is a simple indexation: the current business climate is set in relation to the average business climate of the last year ending at 0 or 5 (currently 2015), with an index reference value of 100 being assigned to this.
Sometimes the economic situation is also shown in the form of a business clock.
Current figures and graphics as well as the complete time series are regularly published on the website of the Ifo Institute.
Procedure
The questionnaires are sent out to companies in the manufacturing , construction , wholesale and retail sectors during the first week of each month . The companies are asked, among other things, to assess their current business situation and to share their expectations for the next six months. You can label your situation as “good”, “satisfactory” or “bad” and your business expectations for the next six months as “more favorable”, “constant” or “less favorable”. In the middle of the month, companies will receive a reminder if they have not yet responded. Companies can submit the questionnaires up to the day before the publication of the Ifo Index, usually in the last week of the month. As a rule, 7000 reports from the companies are evaluated.
questionnaire
The questionnaire consists of around 20 questions. The companies are interviewed about
- your current business situation (choice: good, satisfactory or bad)
- your business expectations for the coming half year (choice: cheaper, constant or less favorable)
- the demand situation (choice: improved, not changed or worsened)
- the number of their employees (options: increasing, constant, decreasing)
Calculation method
The balance value of the current business situation is the difference between the (weighted) percentages of the answers “good” and “bad”, the balance value of the expectations is the difference between the (weighted) percentages of the answers “more favorable” and “less favorable”. The business climate is a geometric mean of the balances of the business situation and expectations. To calculate the index value, the business climate is normalized to the average of the base year (currently 2015).
interpretation
The index is an early indicator of economic development in Germany. The advantage over official statistics is that they are collected more frequently and are available more quickly ( for example, GDP is only collected on a quarterly basis and is published with reservations about two quarters later). In addition, in contrast to the official statistics, the business climate index is subject to fewer revisions. (Revisions of the index are due to the applied seasonal adjustment and averaged 0.04 index points after one month)
Due to the narrowly limited scope of the data collected (e.g. the share of the sectors covered by the Ifo Institute in the GDP in 1998 was only around 35%), however, it buys its advantages through lower data than hard data such as GDP Reliability.
It is of particular importance in forecasting reversals in economic growth . According to the so-called three-time rule, a trend reversal in economic development can only be expected with a high degree of certainty after the business climate indicator has swung three times in the relevant direction (see: MCD measure / months of cyclical dominance ).
When comparing the indices and GDP, the rates of change of the indices and the rates of change of the previous year's GDP are used. The correlation coefficient between the business climate determined and the rate of change in GDP is then around 0.7. A value of 0.7 means that 49% of changes in GDP can be determined by the business climate index.
The business expectations , a coefficient of 0.6 results in a direct comparison with GDP. If one shifts the values of the index one period into the past in order to assess its forecasting ability, the coefficient rises to 0.65. As expected, the information provided by the companies has a lead over the actual economic development.
The business assessment has the lowest correlation to the development of the GDP of the published indexes: Only when you move a quarter into the future the values of the index, the correlation is at an acceptable level at 0.66. This means that this index has a lag of around six months.
Highs and lows
According to the classification of economic sectors and weighting that has been in effect since May 2011, the index reached its lowest value in December 2008 with 84.6 points (2005 = 100). Also in December 2008, the business expectations sub-indicator reached an all-time low of 78.5 points . The second sub-indicator, business situation, recorded its lowest level to date at 84.0 points in May 1993. For April 2020, a business climate index of only 74.3 was determined as part of the corona crisis ; this is a decrease compared to the same month last year (April 2019) of 25.6 percentage points .
The all-time high of the index was reached in February 2011 at 115.4 index points, slightly exceeding the high from the previous economic cycle in December 2006 (113.6 points). For the business assessment sub-indicator , the historic high was measured in June 2011 at 123.3 points, after 121.2 points in December 2006. In February 2011, companies assessed the development of their future business situation ( business expectations sub-indicator ) as good with an index value of 110.7 like never before.
See also
Web links
- Official website
- Page with the current long-term series of the Ifo Business Climate Index as an XLS file
- Development of the ifo business climate index over the past 12 months
- Exemplary questionnaire (for the manufacturing industry)
Individual evidence
- ↑ ARD Börsen-ABC, keyword: ifo business climate index , accessed on October 14, 2019.
- ↑ Klaus Abberger, Klaus Wohlrabe: Some prognostic properties of the Ifo business climate - an overview of the more recent scientific literature. In: Ifo Business Surveys and Business Cycle Analysis. ifo Institute, Munich, 2007, pp. 7-14 , accessed on September 12, 2017 .
- ↑ Sauer, Stefan and Wohlrabe, Klaus: Seasonal Adjustment in the Ifo Business Survey - Conversion to the X-13ARIMA-SEATS procedure. (PDF; 249 kB) In: ifo Schnelldienst 68 (01), 2015, pp. 32–42.
- ↑ a b c d André Kunkel: Predictability of the Ifo business climate as well as the review of the “three times rule”. (PDF; 249 kB) In: Ifo discussion contributions. No. 80, 2003.
- ↑ Press release of the CESifo Group from May 19, 2011