German business confidence rises despite fears

23rd November 2006, Comments 0 comments

By Andrew McCathie, dpa23 November 2006

By Andrew McCathie, dpa
23 November 2006

Berlin (dpa) - German business confidence unexpectedly rose in November, a key survey released Thursday showed, climbing back to a 15-year high amid optimism in industry that Europe's biggest economy would be able to withstand a likely slide in global growth.

The Munich-based ifo economic institute said its monthly index of 7,000 executives in Germany edged up to 106.8 this month from 105.3 points in October and added to a batch of upbeat economic sentiment reports emerging from leading European economies this week.

Analysts had predicted the ifo index, which is considered to be one of Europe's key economic indicators, would slip to 105.3 this month.

Indeed, released against the backdrop of worries about a weaker US and Japanese economic outlook as well as concerns that higher interest rates combined with next year's hefty rise in Germany's sales tax will hit growth in Europe's biggest economy, Thursday's rise in the ifo index surprised economists.

"It seems to indicate a fundamental optimism," said Rainer Guntermann, senior economist with the investment house Dresdner Kleinwort.

Business now seems to believe that any "dampening effect on growth from the sales tax increase will be shortlived," he said.

Moreover, the jump in the November ifo index came despite worries that a fall in US growth could underpin a further rise in the euro with the institute pointing to rising export expectations as a key driving force behind the pickup in its monthly index.

"The manufacturers saw increasing opportunities in the already robust export business," said ifo president Hans-Werner Sinn, releasing the survey.

The November increase takes the index back up to the 15-year high it hit in June with the more 20-per-cent fall in oil prices since July's record of 78.40 dollars also helping to shore up sentiment in Germany's boardrooms.

Both the index's components measuring the current business climate in Germany and expectations charting business sentiment six months down the track, rose in November.

While the survey gauging the current situation rose from 111.9 points in October to 113.9 in November, the index's expectations reading edged up from 99.2 to 100.1.

"These survey results indicate a further continuation of the economic upswing," said Sinn. "The firms were noticeably more satisfied with their present situation," he said.

The ifo institute said the rise in the business climate index in Germany's economically hard-pressed eastern part of the country was stronger than the national average.

However, expectations in Germany's retail sector fell ahead of the German government's planned three percentage point hike in sales tax in January.

What is more, the increase in the ifo's November reading followed the release of official data showing the German economy slipping back in the third quarter.

The nation's statistics office confirmed Thursday that the country's GDP rate came in at 0.6 per cent during the three months to the September, compared to 1.1 per cent in the second quarter.

This, however, was mainly the result of a shrinking building sector with private consumption growing by 0.7 per cent during the third quarter and exports jumping by 4.2 per cent.

In addition, key economic reports released in France, Spain and Italy earlier this week also underscored the strong performance of the European economy as it entered the run-up to the end of the year.

While consumer confidence picked up in France, the mood in Italy's household sector improved and a housing boom helped to underpin a third-quarter growth rate of 0.9 per cent in Spain.


Subject: German news

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