German business confidencegains ground despite high oil

25th October 2004, Comments 0 comments

25 October 2004 , MUNICH – German business confidence recorded a surprise gain in October, a survey of 7,000 executives released Monday showed, as executives in Europe's biggest economy shrugged off worries that surging oil prices could slow economic growth.

25 October 2004  

MUNICH – German business confidence recorded a surprise gain in October, a survey of 7,000 executives released Monday showed, as executives in Europe's biggest economy shrugged off worries that surging oil prices could slow economic growth.

The Munich-based Ifo economic institute said its headline index for German business sentiment edged up to 95.3 points in October from 95.2 points in September to record its first rise in three months.

Analysts had predicted that the index, which is one of Europe’s key economic indicators, would tick down to 94.8 points in October.

Releasing the institute's latest survey, Ifo President Hans-Werner Sinn said the index's performance in October indicated that Germany's recovery from a protracted period of stagnation was continuing with the Ifo's headline index remaining above its long-term average.

"The economic recovery continues, albeit without the dynamics of previous upswings," Sinn said, also noting that export expectations had picked up again in October after falling in September.

But he said: "In manufacturing and in wholesaling the outlook for the next six months declined slightly," with the Ifo chief warning that the employment outlook remained unfavourable.

"On the contrary, in construction and retailing the expectations for the coming six months improved somewhat," he said.

The pickup in the closely watched index during October brought to an end a series of falls in the survey, which has essentially been edging down since hitting a three-year high of 97.5 in January.

While German executives took a somewhat downbeat view of current business conditions during October, they were more optimistic about the economic prospects in the coming months with the business expectations component of the Ifo index rising to 95.9 from 95.7.

The component gauging current business conditions slipped to 94.7 from 94.8. Economists had predicted that both components would fall.

Despite the high oil price, said Ralph Solveen, senior economist with Commerzbank AG, German companies had held firm on their business outlook.

The surprise gain in the Ifo index during October came in the wake of oil prices surging to a new record of more than 55 dollars a barrel and consequently casting a shadow over global growth.

At the same time, a soaring euro has fuelled worries about the prospects for Germany's export machine, which has been the driving force behind this year's pickup in the nation.

The better-than-expected Ifo also helped to underpin the euro which jumped to an eight-month high of 1.28 dollars in early European trading Monday.

The publication of the Ifo index came ahead of the release Monday of the German Government's latest growth forecasts with Berlin predicting that the economy would slow in the coming year in the wake of high energy costs.

Economics Minister Wolfgang Clement said Germany's Social Democrat-led government now believes growth in 2005 will come in at 1.7 percent after expanding by 1.8 percent this year.

Releasing the new forecasts, Clement said escalating oil prices had shaved at least 0.25 percentage points off German economic growth this year.

While Clement's growth projections for 2005 are generally more optimistic than the 1.5 percent growth rate predicted for next year by Germany's six leading economic research institutes and many private economists, the chief economist of Germany's biggest bank, Deutsche Bank was more upbeat on growth projections through 2005.

"For this year growth will be 2 percent and next year around 2 percent," said Norbert Walter in an interview with Deutsche Welle TV.

The Ifo index is the second major European economic sentiment survey to be released in recent days.

Belgian's leading economic indicators remained changed last week as the nation's business leaders also waved off worries about euro prices and the strong euro.

Both the ifo index and the Belgian leading indicators are to be followed later this week with the release of a key economic survey for France, the 12-member eurozone's second largest economy, which is forecast to have dipped back during October.

Either way, higher business costs caused by both the strengthening euro and rising oil prices are likely to result in companies delaying taking on new employees and boosting investment, which analysts say are needed to help boost domestic demand in both Germany and the eurozone so as to offset a possible fall in exports.

As a result economists believe that growth in both Germany and the eurozone could slide in the run-up to the end of the year. 


Subject: German news

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