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Germany's confidence at highest in two decades

German business confidence has risen to a new two-decade high, exceeding expectations as an increasingly broad-based recovery in Europe's biggest economy shows no signs of slacking, a closely watched survey showed yesterday.

The Ifo institute's monthly confidence index rose to 110.3 points in January from 109.8 in December. It was the eighth consecutive increase, the highest figure since Ifo started measuring business confidence in reunited Germany in 1991, and exceeded economists' forecast of a slight rise to 109.9.

The German economy rebounded strongly in 2010, growing by 3.6pc as a recovering global economy fuelled a surge in exports and domestic demand showed signs of improvement.

The government this week raised its growth forecast for this year to 2.3pc from 1.8pc.

Ifo found that businesses' outlook for the next six months improved in January, with a sub-index measuring that rising to 107.8 points from 106.8. A component measuring their current situation dipped slightly to 112.8 from 112.9.

Manufacturers led the brighter outlook, and Ifo said that "especially in exports, (they) see much greater opportunities". Retailers and wholesalers were slightly less optimistic, but construction companies anticipated a "clear improvement in business".

"German fundamentals are currently simply too strong to derail the recovery any time soon," ING economist Carsten Brzeski said. "The diversified export mix, the labour market and a further strengthening of private consumption should put growth in 2011 on a broad footing."

Andreas Rees, an economist with UniCredit, said he was sticking to a growth forecast for Germany of 2.5pc this year -- although "one should not exclude an even stronger figure".

He argued that the less optimistic outlook for retailers appeared to be only a correction following a strong pre-Christmas rise.

Germany's strong performance has pulled up overall growth in the 17-nation eurozone, where smaller countries such as Greece, Ireland and Portugal are struggling with heavy debts.

Germany's economy still "shows no sign of being hurt to any significant extent by the dampening influences related to the eurozone debt crisis". IHS Global Insight economist Timo Klein said.

"Germany's increasing domestic strength is being boosted by interest rates that are much too low for its own economic conditions, and exports are remaining robust, supported by the moderate level of the euro," he added.

Ifo's index is based on monthly responses from about 7,000 firms.

Irish Independent