IFO Improving But Suggests Economic Momentum Remains Weak

The IFO Business Climate Index ticked up for the 3rd consecutive month to a 4-month high in November but missed expectations at 87.3 (87.5 consensus, 86.9 prior). The current assessment index came in at 89.4 (89.5 consensus, 89.2 prior) and the expectations index printed 85.2 (85.8 consensus, 84.7 prior).

• Compared to the November flash PMIs, which came in higher than expected including improvements in both Manufacturing and Services activity, the ifo index paints a slightly weaker picture (see chart). But both surveys suggest that activity may have bottomed out over the past few months, albeit at a weak and likely slightly contractionary pace.
• Notably, on the underlying sectoral balances, manufacturing ticked up to -13.5 (-15.7 prior), the best reading since June. Services are still comparatively resilient vs August and September lows but declined to -2.5 (-1.5 prior). The strongest uptick was seen in the trade sector at -22.2 (-27.3 prior), a 5-month high, while the construction sector improved to -29.4 (-30.8 prior), a 4-month high.
• While a bottom may be forming in German activity, signs of recovery momentum remain faint, with the details of the -0.1% Q/Q contraction in Q3 GDP out earlier today confirming a weak picture for a broad set of components. Additionally, the uncertainty of the consequences of the constitutional court ruling might restrain further improvement in confidence in the months ahead.

Source: IFO, BBG, MNI