Ger­man busi­ness morale reaches a 10-month high

The China Post - - WORLD BUSINESS - BY SIMON MOR­GAN

Ger­man busi­ness con­fi­dence rose to its high­est level in 10 months in April, as re­cov­ery in Europe’s big­gest econ­omy con­tin­ues apace, but op­ti­mism could soon begin to stall, the Ifo eco­nomic in­sti­tute said Fri­day.

The Ifo in­sti­tute’s closely watched busi­ness cli­mate in­dex rose to 108.6 points this month, its high­est level since June 2014, the think tank said in a state­ment.

It was the sixth con­sec­u­tive monthly in­crease and was bet­ter than an­a­lysts had been ex­pect­ing.

“The up­swing in the Ger­man econ­omy con­tin­ues,” said Ifo pres­i­dent Hans-Werner Sinn.

In par­tic­u­lar, com­pa­nies’ as­sess­ments of their cur­rent busi­ness sit­u­a­tion “once again im­proved con­sid­er­ably,” Sinn said, but noted that “op­ti­mistic as­sess­ments of the busi­ness out­look were scaled back slightly.”

Ifo cal­cu­lates its head­line in­dex on the ba­sis of com­pa­nies’ as­sess­ments of their cur­rent busi­ness en­vi­ron­ment and the out­look for the next six months.

The sub-in­dex mea­sur­ing cur­rent busi­ness rose to 113.9 points, also the high­est level since June 2014.

But the out­look sub- in­dex slipped slightly by 0.4 point to 103.5 points, the in­sti­tute said.

An­a­lysts said the slight decline in ex­pec­ta­tions was no cause for con­cern just yet.

“De­spite the drop in ex­pec­ta­tions, there is no rea­son to ring the alarm bell,” said Natixis econ­o­mist Jo­hannes Gareis.

In fact, the in­crease in the as­sess­ment of the cur­rent sit­u­a­tion “sug­gests that the Ger­man econ­omy is still gain­ing mo­men­tum,” the ex­pert said.

And fur­ther ahead, “we ex­pect strong tail­winds from cheap oil, the low euro and low in­ter­est rates to drive the Ger­man econ­omy for­ward,” Gareis said.

Bay­ernLB econ­o­mist Ste­fan Ki­par also felt that the Ger­man econ­omy had “got off to a good start in the sec­ond quar­ter. Fur­ther­more, the out­look for the com- ing months is pos­i­tive.”

Post­bank econ­o­mist Thilo Hei­drich said the Ifo in­dex “has been in a clear up­trend since Novem­ber 2014” and at­trib­uted the slight soft­en­ing of ex­pec­ta­tions com­po­nent to un­cer­tainty about Greece.

“Over­all, the in­dex points to a con­tin­u­a­tion of the cur­rent re­cov­ery. In view of the cur­rent fa­vor­able fun­da­men­tals, such as the low oil price, the weak euro and the pos­i­tive sit­u­a­tion on the la­bor mar­ket, we ex­pect the Ger­man econ­omy to con­tinue to grow dur­ing the course of the year,” Hei­drich said.

Un­stop­pable Con­fi­dence?

For ING DiBa econ­o­mist Carsten Brzeski “Ger­man busi­ness op­ti­mism seems to be un­stop­pable, paving the road for an ex­cel­lent year of growth.”

The Ger­man econ­omy “is in de­cent shape. The first months of the year point to a good, though not ex­cel­lent, growth per­for­mance in the first quar­ter. And the next quar­ters should not be very dif­fer­ent,” he added.

Do­mes­tic de­mand was strong, thanks to record high em­ploy­ment, ris­ing wages, fall­ing en­ergy prices and boom­ing con­sumer de­mand driven by record low in­ter­est rates, the ex­pert said.

Just a day ear­lier, the GfK con­sumer con­fi­dence in­dex rose to its high­est level since Oc­to­ber 2011, “con­firm­ing the pic­ture of al­most eu­phoric con­sumers,” Brzeski said.

Com­merzbank econ­o­mist Jo­erg Krae­mer was more cau­tious, how­ever.

The Ifo in­dex “can’t go much fur­ther now,” he said.

“De­mand growth from the emerg­ing mar­kets has eased off sub­stan­tially, for one thing, and Ger­man profit mar­gins are com­ing un­der grad­ual pres­sure from the marked rise in unit la­bor costs. One should not be­come overop­ti­mistic for Ger­many’s growth out­look,” Krae­mer warned.

Ear­lier this week, the gov­ern­ment up­graded its growth fore­casts for both this year and next year to 1.8 per­cent.

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