German business confidence jumps in October

25th October 2005, Comments 0 comments

25 October 2005, BERLIN - German business confidence jumped strongly in October, the closely watched ifo survey released Tuesday said, as hopes for a pickup in global growth helped to fuel expectations for exports from Europe's biggest economy.

25 October 2005

BERLIN - German business confidence jumped strongly in October, the closely watched ifo survey released Tuesday said, as hopes for a pickup in global growth helped to fuel expectations for exports from Europe's biggest economy.

The Munich-based ifo economic institute said its monthly survey of 7,000 executives produced an index reading of 98.7 points compared to 96 points in September.

This pushed the index to a five-year high with falling oil prices and a 12 per cent drop in the euro since January adding to industry's positive outlook for Germany, which is the world's leading export nation.

"The economic recovery seems to be on firmer ground," said ifo institute president Hans-Werner Sinn on releasing the latest survey.

Considered one of Europe's key economic indicators, the ifo index's October reading came in higher than expected. Analysts had predicted the index would edge up only marginally to 96.1 this month.

The surprise jump in the ifo also came against the backdrop of moves by Germany's two major parties to forge a new "grand coalition" government, ending the political gridlock in the country following last month's inconclusive national election.

Setting the stage for the release of a slew of key economic sentiment surveys across the 12-member eurozone, both France and the Netherlands reported a brighter business climate in their countries.

A report released last week showed German investor confidence also rising in October, while a survey drawn up by Germany's Chambers of Commerce and Industry (DIHK) underscored expectations of accelerating economic growth and the likely end of big job cuts by industry.

The increasing optimism about the eurozone's growth outlook also helps the European Central Bank to mount a case for delivering a rate rise, possibly during the first six months of next year.

The ECB's benchmark refinancing rate currently stands at a post- war low of 2 per cent.

"Together with the marked improvements in business sentiment elsewhere, the surge in the ifo business climate index should lower the hurdles to an early ECB rate hike," wrote Morgan Stanley economists Elga Bartsch and Thomas Gade in a note to clients.

The ifo survey showed German industry leaders growing more optimistic both in terms of their assessment of current economic conditions and their expectations for economic prospects six months down the track.

While the ifo gauge measuring current conditions rose to 98.9 in October from 96.5 in September, the component gauging expectations bounded up to 98.5 from 95.5.

Helping to drive up the ifo index in October was the positive response from all industries measured in the survey. This includes the building, manufacturing, wholesale and retailing sectors.

Despite the sense of optimism in business, the Germany economy is expected to expand at only a very modest rate this year.

Although official data released this week showed inflationary pressures, economists believe that the German economy will be lucky to chalk up a growth rate this year of 1 per cent.

DPA

Subject: German news

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