Macron fuels German economic optimism

Ifo business climate index hits post-reunification high

BERLIN, May 23, (RTRS): Business morale in Germany hit its highest since reunification in May and an already rosy growth outlook brightened further, tapping into hopes that Berlin will ally with Paris in spearheading a broad-based economic revival in Europe.

France is Germany’s second biggest trading partner and europhile Emmanuel Macron’s presidential election win over far-right protectionist rival Marine Le Pen in early May has given fresh impetus to neighbouring exporters.

That boost in confidence emerged in Tuesday’s Ifo business climate index, which jumped to 114.6 — the highest since its current data set began in 1991, the year after West and East Germany unified.

Klaus Wohlrabe, economist for the Munich-based Ifo institute, said the positive news of Macron’s victory had provided a tailwind. “It is a signal that the European Union is not under acute pressure, as it was a year ago,” he said.

Neither the countdown to Britain’s departure from the EU nor the “America first” polices of US President Donald Trump had succeeded in putting a brake on the German economy, he added.

Growth in the economy, Europe’s largest, accelerated to 0.6 percent quarter on quarter in the first three months of 2017, separate data showed on Tuesday. The Federal Statistic Office cited strong exports, booming construction and higher spending by households and the state as factors.

Germany has outpaced France in recent years, helped by record low unemployment as labour reforms similar to ones that Macron has said he also plans to implement kicked in.

Since Macron took office, Chancellor Angela Merkel has stressed the lead role she believes a Franco-German axis should play at the heart of a Europe of strengthened economic reforms and deeper integration.

She now looks odds-on to remain the pillar of that bilateral relationship beyond her country’s national elections in September, for which earlier this year her conservatives were running neck-and-neck with their Social Democrat (SPD) rivals.

“This impressive string of strong economic data is boosting Merkel’s already good chances of getting reelected even further,” said Timo Klein, economist for Markit, which also published its composite Purchasing Managers’ Index (PMI) for May on Tuesday.

The main question now was whether she could form a new coalition government with just the businessfriendly Free Democrats (FDP) — as a poll published on Tuesday suggested — or if she would be forced into another ‘grand coalition’ with the SPD, he said.

Markit’s PMI showed Germany’s private sector grew at the fastest pace in more than six years due to stronger-than-expected factory activity.