German business confidence highest since 2007

AP News
Posted: Oct 22, 2010 5:24 AM
German business confidence highest since 2007

German business confidence has risen to a 3 1/2-year high as gloom lifts over managers' outlook, defying expectations of a fall, a closely watched survey found Friday.

The Ifo institute said its confidence index, a key indicator for Europe's biggest economy _ rose to 107.6 points for October from 106.8 in September.

That was the fifth consecutive rise, and a much steeper one than its marginal increase the previous month. It took the index to the highest level since May 2007, before the financial crisis, when it stood at 108.4. Economists had expected a slight decline.

"The engine of economic activity is running smoothly," Ifo President Hans-Werner Sinn said in a statement.

Ifo said that businesses' view of their current situation was stable. A subindex measuring that assessment edged up to 110.2 points from 109.8.

The component measuring companies' expectations for the next six months rose to 105.1 from 103.9 after two months of declines.

"This ongoing resilience, overcoming not only the ramifications of this year's eurozone debt crisis but also slowing global demand and a concurrent strengthening of the euro in recent months, is quite remarkable," said Timo Klein, an economist at IHS Global Insight.

The data "reinforce the view that the German economy will prove very resilient against any downward influences from a weakening global economy, unlike during the past," he added.

Business confidence in the manufacturing and construction sectors improved this month, Ifo said. It was slightly lower in the retail industry, but "remains very good," Sinn said.

In manufacturing, exporters gave "more favorable appraisals of their chances in foreign markets," he added.

Ifo's survey comes a day after the German government more than doubled its economic growth forecast for this year to 3.4 percent. It expects the economy to grow by 1.8 percent in 2011.

Strong exports have led the economy back to robust growth this year, and Germany saw growth of 2.2 percent in the second quarter over the previous three-month period.

There have been worries recently about the impact of cooling global growth and the euro's new-found strength on German exports; but there also have been increasing signs of life in domestic demand, as a resilient labor market and low inflation help consumer confidence.

Klein said that "the driving factor throughout the third quarter has been the retail sector."

"With a recovering labor market supporting private consumption, the dependence on exports and thus global demand growth is being reduced at present," he said.

Ifo's survey is based on responses from some 2,500 companies.