Business confidence jumps again

27 January 2004

MUNICH -German business confidence unexpectedly rose in January, a survey of 7,000 executives released Tuesday showed as industry in Europe’s biggest economy laid aside worries about the strong euro.

The Munich-based Ifo economic institute said its headline index for western German business sentiment was 97.4 points in January, up from a revised 96.9 points in December.

The survey stood at 95.7 points in November. The closely-watched index has now increased for nine consecutive months with the institute saying that the increase in the January reading was solely a result of German industry’s of current business conditions.

Analysts had predicted that the index, which is one of Europe’s key economic indicators, would level out in January and predicted a reading for the month of 96.8, which would have meant that the index remained at about its December level.

Releasing the index Ifo President Hans-Werner Sinn also said that the improvement in the business climate was largely boosted by the manufacturing sector and to an extent by the construction industry.

“The renewed improvement in the business climate index in western and in eastern Germany supports the forecast of the Ifo institute that the economic recovery will continue,” he added.

His views were echoed by analysts with Ralph Solveen, economist with Commerzbank AG saying that the Ifo report confirmed the picture of a gradual pickup in the German economy.

Indeed, at least for the time being the Ifo report appears to indicate that German industry believes that the global economic recovery is likely to offset any negative impact on foreign orders of the euro.

This was trading at just under USD 1.25 Tuesday after having jumped by about 15 percent against the greenback over the last 12 months.

This is in line with the thinking in the European Central Bank, which has argued that the escalation in world economic growth will outweigh any dampening effect on exports resulting from the euro’s climb and as a result attempting to allay concerns that the common currency’s surge could place Europe’s recovery at risk.

Combined with a batch of good corporate news and hopes that Germany was on a growth path, the unexpected increase in the Ifo report helped to boost shares in Frankfurt with the stock market’s prime DAX index rising by 1.1 percent in early European trading.

The Ifo report also underscored that German industry leaders had become more uncertain about the nation’s business conditions further down the track.

Analysts said this might also serve to point to nagging doubts about the future prospects for the euro, which hit an all-time high of USD 1.29 this month.

While German executives’ assessment of current business conditions edged up to 84.3 points in January from 83.3 points in December, the report’s reading measuring business expectations in three months time remained at the upwardly revised December level of 111.2 points.

Three years of economic stagnation in Germany, which is the world’s leading export nation, came to an end in the third quarter last year as a rebound in the global economy helped to power ahead the country’s key export machine.

Highlighting concerns about the surging euro, a survey of institutional investors and analysts released last week, and which is compiled by the Mannheim-based Centre for European Economic Research, showed investor confidence in the nation falling for the first time in three months.

In the nation’s economically hard-pressed former communist east, business confidence rose to 105.4 points in January from a revised 104.7 in December.

But while executives in the east were more pessimistic about current business conditions, they were somewhat more optimistic about the business outlook.