Upbeat Germany emerges as Europe's economic locomotive (News Feature)

By Andrew McCathie Jul 29, 2010, 15:51 GMT

Berlin - The upswing in German industry has gained momentum with six of the nation's top companies unveiling a string of buoyant results Thursday.

Combined with a steady stream of upbeat economic indicators, the sparkling performance by corporate Germany has helped underscore the country's role as the driving force in European economic growth.

'Germany's export-led recovery appears to be going from strength to strength,' said Jennifer McKeown, senior European economist with the economics research group Capital Economics.

From cars through to engineering, trucks, chemicals and aviation, German business has been riding high on the global economy's rebound from recession and the upturn that has taken hold across leading emerging economies, notably in Asia and Latin America.

'The timid signs of recovery at the beginning of the year were confirmed and strengthened,' in the second quarter, said truck and diesel-engine maker MAN, releasing its latest earnings.

Indeed, the corporate earnings rolled out Thursday have for the most part outpaced analysts' forecasts, with several companies raising their business outlooks amid burgeoning order books.

Coinciding with the latest quarterly results of companies such as Siemens, Volkswagen, BASF and Lufthansa, a key indicator showed the economic mood in Germany soaring to the highest level in the 16- member eurozone.

At the same time, the labour office said German unemployment fell for the 13th consecutive month as a consequence adding to optimism about the outlook for Europe's biggest economy.

'Siemens gained further momentum in the third quarter,' said Siemens chief Peter Loescher, adding that the group's operating profit 'reached its highest point ever, and will clearly exceed the level of the year prior.'

Siemens' orders jumped by 22 per cent, expanding at their fastest pace since 2008. This was just before the world economy slumped into its biggest recession since the Great Depression.

The Munich-based Ifo economics institute said last week that its closely watched German business confidence survey jumped to a three- year high this month boosted by optimism about exports.

'The German economy is back in party mood,' Ifo President Hans- Werner Sinn said as an export boom helps to power the nation's key export machine.

The latest official data showed German exports climbed by 28.8 per cent year-on-year in May after surging by by 9.2 per cent on the month.

After contracting by a dramatic 4.9 per cent last year as the roof collapsed on the global economy, many economists expect the German economic expansion rate to top 2 per cent this year.

Up until now exports have been the main driving force behind the expansion rate, with the real challenge facing the German economy resulting from feeble domestic demand.

But the Nuremberg-based GfK institute said in a survey released this week that German consumer confidence is set to rise as the steady improvement in the labour market helped to bolster the mood among the nation's households.

This helped to raise hopes that German consumer spending could soon start to underpin the nation's growth rate.

However, a key test of Germany's industrial sector could come in the coming months with signs already emerging of a slowdown in the key pillars of the world economy, such as China and the US.

In the meantime, VW chairman Martin Winterkorn said Europe's biggest carmaker's first-half earnings had been 'clearly in excess of our expectations.' The company's profit before tax tripled to 2.6 billion euros (3.4 billion dollars) year-on-year during the first six months.

Thursday's release of the VW results were accompanied by a crop of strong results from the nation's key automotive sector.

Releasing its quarterly figures, automotive parts manufacturer Continental said it was raising its sales forecast from at least 5 per cent to about 15 per cent for 2010.

'Continental is well on its way to emerging from the crisis stronger than before,' said Continental chief Elmar Degenhart.

The Hanover-based company's sales soared by 40 per cent during the first six months of the year.

Likewise, Europe's third-biggest truck maker MAN reported a 16- per-cent jump in second quarter sales, with operating profit almost doubling to 276 million euros. Orders soared by 64 per cent.

'Better macroeconomic developments and reduced uncertainty in the financial sector and in manufacturing industry had a positive effect on the transportation and energy markets,' said MAN chief Georg Pachta-Reyhofen releasing the results.

A similar story emerged at chemicals giant BASF where a strong pickup in demand resulted in the group doubling operating profits during the second quarter.