Business World

Tuesday 20 February 2018

German business morale brightest in nearly six years

* Ifo's business climate index rises to 112.3

* Business morale much better than forecast

* Managers brush off US threat of protectionism

* Europe's biggest economy set for solid growth

European Central Bank (ECB) headquarters in Frankfurt. Photo: Reuters
European Central Bank (ECB) headquarters in Frankfurt. Photo: Reuters

Michael Nienaber

German business morale hit its highest level in nearly six years in March, suggesting company executives in Europe's largest economy are brushing off concerns about the threat of rising protectionism and Germany's own election issues.

The surprisingly strong business climate index, published on Monday by the Munich-based Ifo economic institute, added to signs that the German economy is firing on all cylinders at the start of 2017.

Ifo said its business climate index, based on a monthly survey of some 7,000 firms, rose to 112.3 from an upwardly revised reading of 111.1 in February.

"Wow! Nobody expected such a clear rise," LBBW chief economist Uwe Burkert said. "The concerns about Brexit, Trump and the upcoming elections in France seem to have disappeared.

But he added: "In my opinion, this carelessness is somewhat exaggerated."

Nordea economist Holger Sandte said the numbers were pointing to an overall economic growth rate of some 2pc this year.

Businesses appeared to be completely unfazed by "Americaa First" protectionist rhetoric in Washington, European politics and even Germany's own election cycle, which will decide later this year whether Angela Merkel remains as chancellor.

"The political uncertainties don't affect the German economy," Ifo economist Klaus Wohlrabe told Reuters.

Ifo's March business climate reading was the highest since July 2011 and it came in stronger than a Reuters consensus forecast for 111.0, surpassing even the highest forecast.

"The upswing in the German economy is gaining impetus," Ifo chief Clemens Fuest said in a statement.

GOOD NOW, TOO

Managers' assessment of the current business situation improved, also reaching its highest level since July 2011, and firms also expressed greater optimism about the months ahead.

The rise in the headline figure was driven by improved sentiment in manufacturing, construction and retailing, while the business climate in wholesaling deteriorated.

In construction, assessments of the current situation reached their highest level since 1991 as a growing population, rising wages, higher job security and record-low borrowing costs are driving a housing boom in Germany.

The Ifo index follows the release of Markit's Purchasing Managers' Index (PMI) on Friday that showed Germany's private sector grew at the fastest pace in nearly six years in March, driven mainly by strong demand for manufactured goods from the United States, China, Britain, and the Middle East.

The upbeat sentiment indicators were underpinned by a series of strong economic data released earlier this month, suggesting that Europe's biggest economy had a robust start into 2017.

German industrial output rose more than expected in January while a jump in imports surpassed an also surprisingly strong increase in exports that month.

This points to an accelerated growth rate in the first quarter of 2017 after the German economy grew by 0.4pc in the final three months of 2016, driven by soaring private consumption, increased state spending and construction.

In the full-year of 2016, Germany's gross domestic product (GDP) expanded by 1.9pc, the strongest rate in five years.

Reuters

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