German Ifo Confidence Improved Even as Brexit Threat Loomed

  • Ifo business climate index rises to 108.7 from 107.8
  • Gauges for both current situation, expectations improve

German business sentiment unexpectedly improved in June as companies shrugged off the risk of Britons voting to leave the European Union.

The Munich-based Ifo institute’s business climate index rose to 108.7 from a revised 107.8 in May. That’s the highest level since December. The median estimate in a Bloomberg survey of economists was for a decline to 107.4. The U.K. voted to quit the 28-nation bloc, with final results published Friday showing 52 percent of the electorate was in favor of an exit.

Even though Europe’s largest economy counts the U.K. as the third-biggest destination for its exports, more than 60 percent of German manufacturers surveyed by Ifo said they don’t expect a Brexit would have any impact on their business. A poll by Markit Economics published Thursday showed manufacturers and service providers in Europe’s largest economy were unfazed about the outcome of Britain’s referendum.

The U.K.’s decision to leave triggered a market rout similar to the one observed during the 2008-2009 financial crisis, with the pound plunging to the lowest since 1985. Policy makers have stressed that they’ll do their utmost to shield the economy from any consequences of an exit.

Ifo’s measure of current economic conditions climbed to 114.5 from 114.2, according to the report. A gauge of expectations improved to 103.1 from 101.7. The survey was conducted from June 6-23, with the bulk of responses received in the first two weeks of the period.

ECB President Mario Draghi told lawmakers in Brussels earlier this week that the institution had plans in place in case the U.K. referendum sparked turmoil and threatened the outlook for the 19-nation euro region. He also said that policy makers were ready to do more if needed, building on a range of stimulus measures already in place that include large-scale asset purchases, negative interest rates and cheap loans for banks.

While the German economy probably slowed significantly in the second quarter after expanding 0.7 percent in the first three months of the year, growth is poised to pick up in the second half, the Bundesbank predicted in its monthly report released Monday.

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