The IFO business index fell to 106.9 from 109.9 in April, only slightly above its recent low in October 2011 of 106.5. This was worse than the consensus expectations, which fell to 100.9 from 102.7, while the assessment of the current situation dropped to 113.3 from 117.5 in April.
The IFO index is a monthly economic report, it surveys over 7,000 companies in Germany to obtain their opinion of the current business situation and asks them to quantify their response by selecting good, satisfactory, or poor and provide their expectations for the future business climate using the same criteria. The index measures the changes in business confidence and is an early indicator for economic development in Germany. It shows whether business spending and capital investment is likely to increase or decrease.
The business climate in wholesale fell from 12.7 to 8.0 and plummeted in retail from 10.7 to -3.6. Construction firms also reported a weaker business climate (-5.1 after -3.9), but assessed the current situation more positively. In the manufacturing sector, the business climate deteriorated significantly from 15.4 to 10.6, primarily due to a much poorer assessment of the current business situation, according to IFO.
Analysts at Barclays said that data indicates continuing robust domestic demand but weak investment and foreign demand,
“likely reflecting the renewed intensification of the euro area sovereign debt crisis and the ongoing recession in several euro area member states.”