The Dispersion of Corporate Expectations as a Measure of Cyclical Uncertainty: Results Based on the IW Business Survey

The extent of economic uncertainty cannot be measured directly but, in addition to financial market indicators and media analyses, surveys of companies can provide important assessments of corporate and macroeconomic uncertainty. The IW Uncertainty Index is based on the results of the economic survey conducted biannually by the German Economic Institute (IW) in spring and autumn. The dispersion of positive and negative production expectations allows conclusions to be drawn about uncertainty among companies. The results for 2019 show that uncertainty about the business cycle has increased significantly in the course of the year. However, while there is a tendency for greater uncertainty to go hand in hand with lower economic growth, the dispersion measure is by no means an economic indicator. Measuring uncertainty by sector suggests that manufacturing, and especially the producers of intermediates, can provide a relatively accurate picture of macroeconomic uncertainty. When interpreting the results, particular attention should be paid to the proportion of companies with unchanged expectations.