German business morale hits all-time high in January: Ifo

German business morale soared to a fresh record high in January, a closely-watched survey said yesterday, as Europe’s humming top economy kicks off the new year brimming with confidence.

The Ifo economic institute’s business climate index jumped from last month’s 117.2 points to a historic 117.6 points, beating analyst expectations.

“The German economy made a dynamic start to the year,” Ifo president Clemens Fuest said in a statement.

Analysts surveyed by Factset had predicted the index would be unchanged from December, when sentiment dipped below November’s previous record of 117.5 points.

At the start of 2018 businesses were more optimistic about their current economic situation than last month, the survey of some 7,000 firms showed.

Their expectations for the future however dropped slightly “but remain at a high level”, Ifo said.

The buoyant mood suggests company bosses are unfazed by the drawn-out efforts to forge a new coalition government in Berlin four months after inconclusive elections.

The latest Ifo reading sends “a strong signal that the current political impasse in Berlin has no impact on the economy at all,” said economist Carsten Brzeski of ING Diba bank.

“At the beginning of the new year, it’s all hunky-dory in the German economy,” he added.

Chancellor Angela Merkel’s conservatives are due to begin formal coalition talks with the centre-left Social Democrats in coming days, and the parties have said they hope a new government will be in place by midmarch.

Looking at the Ifo index in detail, manufacturing and construction firms were more cheerful than ever about their current situations, but expressed wariness about the future.

Wholesalers and retailers on the other hand were more optimistic about the months ahead.

The Ifo survey is in step with the bright mood seen among German shoppers, with a poll released by market research firm GFK earlier on Thursday forecasting that consumer confidence will inch upwards in February.

Other indicators on the German economic dashboard are also in the green, with official figures showing the country notched up growth of 2.2 percent last year.

Looking ahead, Brzeski said the biggest risks to the German economy came from the outside, notably in the form of US tax reforms and the threat of rising protectionism around the globe.

“New structural reforms and new private and public investments are needed to safeguard the currently strong domestic momentum of the German economy,” he said.