German business confidence at 15-year high

28th March 2006, Comments 0 comments

28 March 2006, BERLIN - German business confidence soared to a 15-year high in March, the closely watched Ifo survey released Tuesday showed, with the upbeat mood in industry underscoring hopes of stronger growth in Europe's biggest economy.

28 March 2006

BERLIN - German business confidence soared to a 15-year high in March, the closely watched Ifo survey released Tuesday showed, with the upbeat mood in industry underscoring hopes of stronger growth in Europe's biggest economy.

The Munich-based Ifo economic institute said its monthly survey of 7,000 executives jumped for the fourth consecutive month to 105.4 in March to hit its highest level since the post-German unification boom.

This came after the index rose to a revised 103.4 points in February with the stronger-than-forecast March Ifo survey adding to expectations that the European Central Bank will again hike rates in the 12-member eurozone in the coming months.

Along with strong money supply figures also released Tuesday and a report showing a jump in Italian business confidence in March, the bullish Ifo report raised the prospects that the ECB could increase rates as early as May.

"Today's key figures from the eurozone were very strong and that makes it a clear possibility that the ECB will raise rates in May - and not in June as previously expected," said Niels-Henrick Sorensen, economist with Danske Bank.

Analysts had predicted the Ifo index, which is considered to be one of Europe's key economic indicators, would dip back to 102.9 points this month.

In particular, a slide in the Ifo had been expected after the release earlier this month of the ZEW investor confidence survey, which slipped for the second month in a row in March.

However, both the Ifo's index's components measuring current business conditions and expectations for business conditions six months down the track rose in March.

While the index gauging leaders' assessment of current business conditions increased to 105.1 from 101.9 in February, the business expectations index rose to 105.7 from an upwardly revised 104.9.

"This is an indication that the economic recovery has stabilised further," said Ifo president Hans-Werner Sinn releasing the report.

The jump in the Ifo index also helped to underpin the euro against major currencies. The common currency rose to 1.2054 dollars and against the yen to 140.71 following publication of the Ifo survey.

The latest Ifo survey also comes in the wake of a raft of buoyant German hard economic data.

While German exports surged into the new year and companies have been reporting that their order books have been brimming over, signs have begun emerged of growing confidence among the country's hard- pressed consumers.

The ECB has already raised rates twice since December. The ECB's benchmark refinancing rate currently stands at 2.5 per cent and many analysts believe that borrowing costs in the eurozone could rise to at least three per cent by the end of the year.

On Monday, ECB governing council member Guy Quaden, who is also head of the Belgium central bank described interest rates in the eurozone as accommodative and expressed optimism about the outlook for the currency bloc's economy.

His comments were followed Tuesday by the ECB's publication of the latest money supply data for the eurozone.

This showed the broad measure of the money supply M3 growing by a higher-than-forecast eight per cent year-on-year in February, compared to 7.6 per cent in January.

The ECB considers M3 to be a prime indicator of future inflation trends. The three-month average of the annual growth rate of M3 over the December-February period stood at 7.6 per cent compared with 7.5 per cent in November-January.

DPA

Subject: German news

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