Today in Forex: ifo Business Survey for Germany Disappoints

Snapshot

The ifo Institute’s Business Climate index for Germany dropped to 97.7 in September, which significantly failed to meet market expectations of a 98.2 result. Offsetting some of that unexpected drop in business morale was the fact that the August reading for the index released in September was revised slightly upward to 98.9 from 98.8.

This forex news represents the index’s 4th monthly decline from its May high of 101.8 that was released in June, 2021, and was the lowest release seen since March’s 96.8 reading came out in April. EUR/USD traded down to 1.1591 in response after trading at 1.1664 shortly before the disappointing release. 

Chart of the ifo Business Climate Germany index from 2017 to 2021. Source: IFO Institute.

Detail

In explaining the unexpected drop in German business sentiment, ifo President Clemens Fuest noted that “Supply problems are giving businesses headaches".  Fuest also remarked on the rise in economic skepticism among businesses and stated that “Sand in the wheels of the German economy is hampering recovery.”

In addition, Fuest pointed out that manufacturing capacity utilization declined 2.1 percent to 84.7. This drop further suggests weakness in the German business environment and demonstrates the impact of the ongoing supply issues.
Regarding future business expections, the survey showed that German business outlooks worsened in the manufacturing, service and trade sectors, although sentiment in the country’s construction sector improved somewhat. 

Germany is the European Union’s biggest component economy, and while it showed substantial resilience over the summer, unanticipated bottlenecks and delays in the supply chain have been notably hampering its important automobile industry. In addition, an increase in energy expenses and the lingering effects of the COVID-19 pandemic may continue to hamper consumer sentiment. 

The ifo Institute’s business surveys are used by scholars, analysts and traders to assess business sentiment in the countries covered. It is widely considered a leading indicator of economic health, so forex traders watch it closely.  

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