German business confidence surges to five-month high

By Andrew McCathie Jan 25, 2012, 11:04 GMT

Berlin - German business confidence jumped to a five-month high in January amid signs that Europe's biggest economy might escape recession, according to a key survey released Wednesday.

The Munich-based Ifo institute said its closely watched survey of business confidence rose from a revised 107.3 in December to 108.3 points in January despite the lingering concerns about Europe's debt crisis.

The January increase easily beat analysts' forecasts of a more modest rise to 107.6.

'The German economy is starting the new year with elan,' said Ifo President Hans-Werner Sinn releasing the survey.

Based on a survey of 7,000 business leaders, the index's January rise represented its third consecutive monthly gain.

It also followed the release last week of a survey showing analyst and investor confidence in the country surging during January.

However, the International Monetary Fund (IMF) on Tuesday slashed its 2012 economic outlook for Germany, saying it now expects the nation's economy to grow by just 0.3 per cent this year after it bounded ahead by 3 per cent in 2010.

In September, the IMF projected a 1.3-per-cent expansion rate for this year.

The Washington-based institute's forecasts came after the German statistics office said earlier this month that the nation's economy contracted by about 0.25 per cent in the fourth quarter last year as Europe's debt crisis dragged down growth.

'Today's Ifo's index shows that the German economy only made a short stopover at the end of last year and is now heading towards expansion again,' said ING Bank economist Carsten Brzeski.

While the Ifo survey gauge of current conditions slipped from 116.7 to 116.3, the business expectations component rose to 100.9 in January from 98.4 in December.

The signs of cautious optimism about Germany's economic prospects are likely to help ease the pressure on European leaders as they gather in Brussels on Monday for a summit to consider the next steps in dealing with the debt crisis.

On Tuesday, the London-based Markit economic research group said its preliminary purchasing managers' index (PMI) for the 17-member eurozone rose to its highest level in four months in January.

But overhanging the German economic outlook is the risk that the eurozone debt crisis could take a sudden turn for the worse.

The rise in the January PMI was mainly a result of optimism in Germany and France, the eurozone's two largest economies, with nations on the periphery remaining in recession.