Germany's Ifo Business Confidence Gauge Revamped to Add Services

(Bloomberg) -- One of Germany’s most-watched economic surveys is being revamped to reflect the growing importance of the service industry in Europe’s manufacturing powerhouse.

The Ifo Institute’s business confidence index will be expanded to include a services gauge, previously published separately, which will now account for just over half the total measure. The weight of manufacturing has been halved to 30 percent. The new methodology will start with the next report, scheduled for April 24 at 10 a.m. Frankfurt time.

The index has also been recalculated with 2015 as the new base year. That technical change will shift the entire series down by about 10 points. For example, the March reading will be revised to 103.2 from 114.7, Ifo said, adding that this “is purely a base-year effect and not a plunge in the business cycle.”

In addition, Ifo will change the way sub-indexes for individual business sectors are calculated in the monthly survey, which asks about 7,000 company leaders to asses the current economy and their expectations for the next six months.

The gauge reached a record high in January but has fallen in the past two months, reflecting increasing concerns over global trade conflicts and weaker-than-expected economic data.

“The (good) quality of the Ifo as an early indicator for the German economy will not change significantly as a result of the modifications,” Commerzbank economist Ralph Solveen wrote in a client note. “The new index is not quite as volatile as the index for industry and trade due to the incorporation of services which are less cyclical.”

To contact the reporter on this story: Alessandro Speciale in Frankfurt at aspeciale@bloomberg.net.

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Jana Randow

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