German business confidencerebounds on export hopes

26 April 2004

MUNICH – German business confidence rose in April amid hopes of strong export growth in Europe’s largest economy, according to a survey of 7,000 executives released Monday.

The Munich-based Ifo economic institute said its headline index for German business sentiment was 96.3 points in April compared to 95.4 in March with the rise this month poweredly entirely by industry leaders’ assessment of current business conditions.

Ifo president Hans-Werner Sinn said the surprise April reading had been prompted by a pickup in the nation’s hard-pressed retail sector as well as a weaker euro that helped to power Germany’s key export machine.

“After the previous month’s fall, the business climate in the retail trade has made a significant recovery,” said Sinn, adding the continued improvement in export expectations in manufacturing had also contributed to this.

“The new survey results point to a further, if moderate, economic recovery,” he said but insisted: “It’s still too early to talk of a solid upturn.”

Even though the companies’ view of the current business situation improved and reached an index of 94.9 points this month, business expectations sank, with an index dropping from 98.8 points in March to 97.8 in April – the lowest reading in nine months.

At the same time, however, the Ifo institute also revised up the March current business reading to 92.2 points.

The monthly Ifo index stood at 96.4 points in February with the rise in April coming on the back of two consecutive monthly falls.

Analysts had predicted that the index, which is one of Europe’s key economic indicators, would fall to about 95 points in April as German business leaders scaled back their previous growth expectations.

Germany’s six leading economic institutes are expected to revise down their 2004 growth forecasts to between 1.4 percent and 1.5 percent in spring reports that are due to be released Tuesday, according to German media reports. They had previously forecast a growth rate of 1.7 percent.

Ralph Solveen, economist with Commerzbank AG, said Ifo’s April reading indicated business hopes that the slide in the euro would allow German exporters’ to profit from the more dynamic world economy.

After its record high of 1.29 dollars in January, the common currency has lost ground against the dollar amid rising optimism about the outlook for the US economy and the prospects of a tighter US monetary regime.

The euro edged up past 1.18 dollars following the release of the Ifo report.

Analysts had expected that recent uninspiring economic data from the eurozone and rising oil prices would have dampened any optimism among German business leaders in the wake of a recent run of robust US economic numbers and the weakening of the euro.

The April Ifo survey – which followed a report on increased business confidence also in Belgium – is now likely to ease some of the pressure on the European Central Bank for a rate cut to help keep the 12-member eurozone economy on a growth path.

Further business confidence reports from the eurozone’s two other big economies, France and Italy are expected later this week.

Meanwhile, the drop in the Ifo index of business expectations echoed another key German economic sentiment survey released last week which also showed a fall in business expectations.

The survey of German institutional investors and analysts, drawn up by Mannheim-based Centre for European Economic Research, showed a sharp fall in April and the fourth straight monthly decline.