German business confidence posts surprise rise

24th September 2010, Comments 0 comments

German business confidence posted a surprise rise in September to levels last seen in June 2007 before the onset of the worst global slump since the 1930s Great Depression, a key survey showed Friday.

The Ifo economic research institute said its business confidence index edged up to 106.8 points from 106.7 points in August, its 10th best reading since 1991, ING senior economist Carsten Brzeski noted.

"The German economy remains the showcase of the eurozone," he said.

The widely-watched reading of sentiment in Europe's biggest economy had been expected to slip to 106.5 points, according to analysts polled by Dow Jones Newswires.

"Firms are again more satisfied with their business situation than in the previous month," Ifo president Hans-Werner Sinn said in a statement.

In the manufacturing sector, sentiment slipped but the retail sector was more positive, with current situation assessed to be at its best since the boom that followed German reunification in 1990.

The outlook also perked up in the construction sector, raising the overall reading to levels not seen since the global financial system was slammed by a meltdown of the US market for high risk mortgages in mid-2007.

Ifo's report contrasted with gloomy news Thursday when data showed activity across the 16-nation eurozone hit a seven-month low in September, according to the purchasing managers' index (PMI) compiled by London-based data and research group Markit.

Ifo's forward looking expectations sub-index also dropped, for the fourth time in five months.

The measure of business expectations for the next six months fell to 103.9 points in September from 105.2 points in August, suggesting the export-led economy will cool later this year in line with weaker activity abroad.

Analysts had expected a slightly more modest drop to 104 points.

The Ifo institute surveys around 7,000 German manufacturing, construction, wholesale and retail companies each month to establish the widely-followed index of business sentiment.

The central bank and economists now expect full-year German growth of at least 3.0 percent, probably surpassing advances elsewhere in the 16-nation eurozone, and in Japan and the United States.

In October, the German government is expected to raise its official 2010 forecast of 1.4 percent growth.

"The economy is increasingly supported by domestic demand" UniCredit economist Alexander Koch said, owing to employment levels that defied the historic German recession last year.

He forecast the German economy would see slower growth later this year but not fall back into recession.

"Barring a global double-dip (recession), the cooling down is not likely to turn into an outright downswing," Koch said.

© 2010 AFP

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