Commentary Directory

German ifo Index: March 2024

Jacob Hess
March 22, 2024

The German ifo Business Climate Germany index grew 2.1 pts to 87.8 in Mar, the highest since July 2023. The increase was driven by similar gains in both the current future assessments of the economy. The former, tracked by the Situation index grew 1.2 pts to 88.1, the highest so far in 2024, and the latter, tracked by the Expectations index, grew 3.1 pts to 87.5, the highest since May 2023. Broadly, the improvement in these indices suggests that we could be seeing a near-term turning point in German economic sentiment that is partly boosted by the expectations that the ECB will start to cut rates in the next few months. The release from ifo agrees with this, saying “the German economy glimpses light on the horizon.”

The brightened outlook was shared by businesses across different sectors. The Manufacturing index jumped a strong 7.1 pts but was still negative at -10.0 suggesting that order books were still declining but at the slowest rate since June 2023. The Service index, tracking the strongest sector of the Germany economy in the last year, ended its streak of negative readings that started in August 2023 after it jumped 4.3 pts to 0.3 in March. Additionally, we saw a sharp improvement in the Trade index of 7.9 pts to -22.9, the least pessimistic reading since November 2023. The construction sector remained the most pessimistic with that index at -33.5, though this was still a gain of 1.9 pts in March. The bottom line is that German businesses witnessed a significant improvement in business conditions in March and because of that improvement, ifo's Business Cycle Traffic Lights model pointed to a 75-80% chance of an economic expansion in March.