German economic hopes riseas business mood brightens

26th July 2005, Comments 0 comments

26 July 2005, BERLIN - German business confidence bounded ahead to a five-month high in July, according to the closely watched Ifo survey released Tuesday, adding to hopes about the outlook for Europe's biggest economy.

26 July 2005

BERLIN - German business confidence bounded ahead to a five-month high in July, according to the closely watched Ifo survey released Tuesday, adding to hopes about the outlook for Europe's biggest economy.

Based on a survey of 7,000 executives, the Ifo economic institute said its business confidence index rose to 95 points compared to 93.3 points in June as a weaker euro and a batch of solid economic data from around the world helped to boost the prospects for German economic growth.

The July rise was higher than the consensus forecast for the index, which is considered to be one of Europe's key economic indicators. Economists had expected the index to nudge up to 93.9 points.

"We can see the first silver lining on the economic horizon," said ifo chief Hans-Werner Sinn, when releasing the index, with a surge in expectations for the next six months helping to power the July reading and offset concerns about high oil prices.

While the index tracking expectations leapt from 92.9 to 95 points, the component gauging business leaders' current assessments crept from 93.7 to 94.9 points. "An economic recovery has become more likely," Sinn said.

It was a view shared by other economists. "Altogether it reinforces the signs of a modest pickup in the second half of the year," said Matthias Rubisch, economist with Germany's Commerzbank AG with most analysts expecting the German economy to turn in a weak performance during the second quarter.

Indeed, the latest ifo survey came in the wake of a series of better-than-expected economic data and surveys out of Germany in recent weeks, as a consequence easing the pressure on the European Central Bank to trim interest rates.

Last week, another key economic sentiment survey, this time measuring the mood among Germany's investors and analysts, surged to a 10-month high.

Adding to optimism about the European economic outlook, a report also released Tuesday showed business confidence in Italy also jumping to a five-month high in July, fuelling expectations that the 12-member eurozone's third biggest economy is on the path to recovery after recently slumping into recession.

The jump in the July ifo index reading followed an upbeat assessment by business leaders from Germany's manufacturing and wholesaling sectors, which pushed the reading for both sectors to above the survey average during July.

Even the mood in Germany's recession-bound construction industry brightened slightly during July.

The rise in export expectations in manufacturing was less marked, the institute said.

However, after losing about 11 per cent against the dollar since the start of the year, the euro has stabilised in recent weeks at about USD 1.20 ,with economists saying that the weaker common currency has contributed to underpinning corporate Germany's global competitiveness. The euro hit a record high of USD 1.36 at the end of last year.

The latest ifo survey was also pieced together against the build-up to Germany's mid-September election, which the nation's industry hopes will set the stage for another round of comprehensive reform in the country.

However, the mood among Germany's hard-pressed retailers went against the overall trend of the ifo survey and darkened during July, following opposition chancellor candidate Angela Merkel's announcement that she planned a hike in VAT to help fund a cut in non-wage labour costs if she won the September election.

Polls are showing Merkel's Christian Democrat-Christian Social Union bloc with a commanding lead over Chancellor's Gerhard Schroeder's Social Democrats.

DPA

Subject: German news

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