German business confidence rises to highest level in year (Roundup)

By Andrew McCathie Oct 23, 2009, 9:44 GMT

Berlin - German business confidence rose to its highest level in more than a year, as a result adding to signs of recovery in Europe's biggest economy a key survey released Friday showed.

In a major test of the economic mood in Europe, the closely- watched Ifo business confidence index climbed from 91.3 in September to 91.9 points in October to record its seventh successive monthly increase.

Drawn up by the Munich-based Ifo economic research institute, the index's rise came despite the euro's recent ascent on foreign exchange markets, which has fuelled concerns about the outlook for Germany's pivotal export machine.

'The recovery continues hesitantly,' said Ifo chief Hans-Werner Sinn with the publication of the report at the same time the euro once again was breaching the key 1.50-dollar mark to reach a new high for the year.

But Sinn went on to say: 'Despite the appreciation of the euro, companies see improved export opportunities.'

The release of the latest Ifo index also follows signals from the European Central Bank that it is in no rush to hike interest rates, alongside an optimistic start to Germany's third-quarter company reporting season.

Analysts had predicted that the October Ifo index, which is based on a survey of 7,000 executives, would climb to 92 points.

The Ifo's release coincides with Chancellor Angela Merkel's attempts to hammer into place a new centre-right coalition government following her conservative political bloc's success at last month's national election.

But Merkel's Christian Democrats have so far failed to reach agreement with its nominated coalition partner, the business-friendly Free Democrats on the size of planned corporate and income tax cuts, which are to a key policy platform of the new government.

With Germany having already emerged from its deepest recession in a generation, the fresh rise in the Ifo index adds to economists' expectations that the recovery will gain ground in the runup to the end of the year.

'The third quarter was a good quarter for the German economy; probably even an excellent quarter,' said ING Bank economist Carsten Brzeski. 'Looking ahead, today's Ifo gives hope that the economy can take some of the current momentum into the next quarter.'

The Ifo index's publication coincided with the release of a purchasing managing survey by the Markit Economics group showing Germany's manufacturing sector returned to growth in October as a result ending 14 months of contraction.

In particular, this month's Ifo index was driven higher by the industry leaders' expectations of business conditions six months down the track.

While the Ifo index component measuring the current business climate edged up this month to 87.3 points from 87.1 in September, the expectations gauge rose to 96.8 points from 95.7 last month.

However, it is the scale of the recovery in Germany that remains open to questions.

Underscoring the fragile upswing underway in Europe's biggest economy, German investor confidence posted a surprise fall in October.

The Mannheim-based Centre for European Economic Research's (ZEW) monthly index measuring the mood among German analysts and institutional investors slipped to 56 points this month.

Analysts had expected the ZEW index, which was released earlier this month, would edge up to 59 points in October after it climbed to a more-than-three-year high of 57.7 points in September.

However, the German Ministry of Economics and Technology last week revised up its growth forecasts saying that it now expects the nation to notch up a moderate 1.2-per-cent growth rate in 2010 after contracting by 5 per cent this year.

But some economic forecasters are even more optimistic. The giant German insurer Allianz AG said this month it believe that German economic growth could hit about 2.7 per cent next year.