German business confidence hits three-year high: institute

25th August 2010, Comments 0 comments

German business confidence has regained levels last seen before the 2007 financial crisis broke, the Ifo economic institute said Wednesday in the latest sign of strength from Europe's biggest economy.

A sharp improvement in industrial leaders' assessments of the current situation and unusually solid retail sector sentiment pushed Ifo's headline index to 106.7 points in August from 106.2 points in July, the highest level since June 2007.

"The German economy remains robust," Ifo president Hans-Werner Sinn said as the closely-watched survey defied analyst forecasts for a drop of its business climate indicator following a record jump of 4.4 points in July.

The survey was released a day after official data confirmed German output grew by 2.2 percent in the second quarter from the previous three-month period, the biggest increase since east and west Germany were reunified in October 1990.

The German central bank and most economists now forecast full-year growth of at least 3.0 percent, compared with weaker activity elsewhere in the 16-nation eurozone, Japan and the United States.

The government is expected to raise its official 2010 forecast of 1.4 percent growth in October.

Analysts noted the difference from a downbeat survey of German investors by the ZEW institute a week earlier, and the European Union purchasing managers' index (PMI) published on Monday.

Some observers worry a second-round recession is possible in Europe, but "thus far these double-dip fears are not shared by the company captains polled by the Ifo institute," Morgan Stanley economist Elga Bartsch noted.

IHS Global Insight senior economist Timo Klein forecast the German economy would "stay fairly robust in the second half of 2010 as domestic demand takes on greater responsibility" for growth.

Germany's rebound from its worst post-war recession has been based in large part on demand from Asia and the United States but activity in many trading partners has begun to slow down.

German business sentiment has nonetheless now reached its highest level since before the global financial system was slammed by a collapse of the US market for high risk mortgages in mid-2007.

Tempering the euphoria, however, Ifo also said business expectations for the next six months edged slightly lower to 105.2 points from 105.5 points a month earlier.

The institute surveys some 7,000 German manufacturing, construction, wholesaleing and retailing companies each month to establish its snapshot of business sentiment.

The manufacturing sector reported that while the current climate was better than in July, the six-month outlook was still confident but "somewhat less so than in the previous month."

"The driving factor during July/August has been the retail sector," Klein said. "One has to go back to the post-unification euphoria in 1991 to find retailers being this upbeat about current conditions."

And UniCredit economist Alexander Koch said "the better mood in the retail sector is backed by the positive impact of the robust labour market on household incomes."

In the manufacturing sector, companies reported "somewhat more frequent plans to increase staff levels," Ifo said, as a programme that used state funds to subsidise shorter working hours during the recession is wound down.

© 2010 AFP

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