Ifo Business Climate, output and earnings in industry and trade

The Ifo Business Climate for industry and trade has long been one of the most important leading indicators for economic developments in Germany. In particular the current business assessments and the business expectations - which form the Ifo Business Climate - are used intensively in the analysis of economic activity. This article shows that the business climate is not only a leading indicator for the cyclical component of the development of output in industry and trade, but that it also gives an indication of firms' cyclical earnings situation. In addition, with the help of the analysis of the main components, an overall indicator is constructed whose correlation with the Ifo Business Climate for industry and trade is very high.