Germany IFO Business Survey

The German IFO business index is a survey of top business executives in the German economy with the objective of gauging the country’s economic performance. It is however not an accurate figure base on exact digits. It is simply meant to get the perception of major players who have the ability to get the relevant information about possible future economic activity basing on the facts already in their possession. These facts are mostly on the purchases and impeding orders that will most likely influence the economic growth or decline in their respective sectors.

How important is it?

This index is very vital as it helps the population in making close projection of impending economic activity. Any smart investor must look out for the index as it generally gives a detailed report based on each sector thus giving any investor the fore sight on which sectors are likely to improve or decline and then adjusting accordingly to prevent their share holdings from loosing value. Although this index is mainly a survey of the top executives’ sentiments on possible future activities in their respective areas, its results cannot be ignored as the executives’ sentiments are mainly based on the documentations of their purchases and or pending orders of goods and services and there can be no better way of telling the future prospects other than by getting it from the players who have already made plans for activities that will shape the same future economically.

How is it computed?

The German IFO institute for economic research at the University of Munich carries out a detailed survey of about 7,000 business executive across the major economic sectors. This survey gathers sentiments from these executives about the prospects of future economic activity in their various sectors. Upon compiling the list of sentiments from the 7,000 executives the figures are classified in terms of what percentage feels there is room for growth against those who fee there s a high possibility of decline in economic activity n their sectors. They then find the average of the two. It is important to note that some may also feel things will remain the same. Their sentiment are also quantified and used to get the eventual average percentage.

How does it affect the forex trade?

This index may affect forex trade especially given that Germany is a major exporter in Europe. Take a situation where the index projects a decline in purchase of raw materials that are used in the manufacture of various export items. This scenario may lead to a major decline in export activity leading to a decline in the local currency’s value.

How does it affect the stock market?

The stock market always reacts to perceptions about possible growth or decline in economic activity. News about the impending decline in economic performance may cause investors to hurriedly try to dispose of their holdings for fear of being caught in the impending decline. Such a rush automatically translates into a drop in share prices.

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