Why is IFO Business Index for Germany Disappointing?

The IFO Institute’s Business Climate index for Germany declined to 97.7 in September, which is significantly below expectations of a 98.2 result.

The unexpected drop in business sentiment 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 May high of 101.8 that was released in June 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.

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

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.