German business optimism rises in December

AP News
|
Posted: Dec 18, 2009 7:40 AM

German business confidence rose for a ninth consecutive month in December as Europe's biggest economy continued to recover steadily from its worst recession in decades, a leading survey showed Friday.

The Ifo business climate index rose to 94.7 points _ its highest level since July 2008 _ from 93.9 points in November. The increase was modestly higher than market expectations and stoked hopes that the recovery is on track.

"After the dramatic economic collapse last winter, these survey results should bring some Christmas cheer," said Ifo president Hans-Werner Sinn.

The Ifo index is based around 7,000 monthly survey responses from firms in manufacturing, construction, wholesaling and retailing. Its long-run average stands at just below 96.

Overall, Ifo indicated that firms are more positive about their current situation _ the sub-index swelled to 90.5 points from 89.1 points the previous month. Expectations for the next six months rose too to 99.1 from 98.9 in November.

"The upward trend for expectations has slowed down but remains unbroken, which bodes well for a continuing recovery also during the first half of 2010," Klein said. "That being said, risks for a temporary setback later on during 2010 remain sizable, in which case a sustained return to solid economic growth may only occur in 2011."

Germany's economy returned to modest growth in this year's second quarter. The government has forecast it will grow by 1.2 percent next year after contracting by 5 percent in 2009.

In its survey report, Munich-based Ifo said the climate in the manufacturing sector improved over the previous month, though the businesses were still "somewhat more reserved" about their expectations for the coming six months. The climate in the construction sector brightened slightly.

The wholesaling and retailing sectors also improved, indicating that the economic recovery, which has been mainly seen in industry, will spread to the consumer sector.

In an effort to boost spending, Germany's upper house of parliament on Friday approved tax cuts for companies and families _ the final legislative hurdle for the plan, which is to go into effect in January.

The so-called "growth acceleration law" is supposed to bring tax relief of around euro8.5 billion ($12.2 billion) a year.

The states of Schleswig-Holstein and Saxony, had threatened to block the law, fearing that they would lose around euro2.3 billion in tax revenue annually. But they gave up their resistance after receiving promises of greater federal investment into education in return.

Alexander Koch, an analyst with UniCredit, said the Ifo survey supports the government's prediction of gradual growth.

"An abrupt end to the current vibrant rebound in German industry is not in sight," he said in a research note. "Although business expectations face increasing headwinds, with strong temporary support factors increasingly fizzling out, we still see chances for a further moderate improvement at the beginning of 2010."