Business climate index (IFO)
|Release Date:||Usually released on a monthly basis, on the third week of the month|
|Release Time:||At 5:00am Eastern US time|
|Released By:||CESifo Group|
The Business Climate Index (IFO) is a monthly survey that is conducted and released by the CESifo Group which comprises of the Center for Economic Studies (CES), the Ifo Institute and the CESifo GmbH (Munich Society for the Promotion of Economic Research). The news release is also known as the German IFO Business Climate report.
Business Climate Index (IFO) is a composite index based on surveyed manufacturers, builders, wholesalers, and retailers. It is derived by surveying more than 7,000 businesses, asking them to rate the current business conditions and to provide the expectations for the next 6 months. The survey is in the form of a questionnaire which asks just two questions:
- The current business conditions of the firm, to which respondents choose one out of three choices: good, satisfactory or poor.
- Expectations for their business in the next 6 months, choosing one answer out of these three: favorable, unchanged, less favorable.
Balance values are derived from the percentage difference between the best answer (good or favorable) and the worst answer (poor or less favorable), and a geometric mean is then used to determine the final value.
Time of Release
Business Climate Index (IFO) is usually released on a monthly basis, on the third week of the month. Information about this news release can be obtained from the CESifo Group website. The news release time is 5am Eastern US time.
Interpreting the Data
The German economy is the strongest in the Eurozone, so this survey is seen as a measure of the health of the economy of the entire Eurozone entity. This survey carries a lot of weight because of the large sample size and historical correlations with the economic conditions of Germany and the Eurozone. It’s a leading indicator of economic health and gives faster indications of the state of the economy than the quarterly GDP report. Changes in the economic sentiment of businesses is an early sign of either an increase or a reduction in corporate spending, hiring of labor as well as investments.
As a trading indicator, this report carries heavy market impact.
The best currency pair to trade this report is the EURUSD. A higher than expected reading is good for the Euro, while a lower than expected reading is seen as Euro negative. The response of the Euro currency pairs to this news release is direct and tradable.