Rising Confidence
January 24, 2008
The Munich-based Ifo economic institute said its monthly index of 7,000 German executives edged up from 103 points in December to 103.4 points this month, beating analysts' forecasts.
The rise in what is one of Europe's major economic indicators came despite this week's torrid round of trading on global stock markets which fuelled fears of a global economic crisis.
"Companies' order books are bursting," Ifo economist Hans Günter Russ told German news agency, dpa. Firms "remain optimistic about their exports," he added.
German business defies fears
Analysts had predicted the closely watched index would show German business confidence sliding to 102.2 points this month on the back of worries that the shakeout in the US housing market could tip the giant US economy into recession.
However, releasing the survey Ifo president Hans-Werner Sinn Said, "On the whole, the condition of firms in German industry and trade continues to be robust."
His comments echo the views of many economists who see Germany acting as Europe's economic locomotive in the coming 12 months, despite the prospects of the nation's growth rate slipping back a notch from 2.5 per cent in 2007 to below 2.0 per cent this year. The Germany economy grew at a perky 2.9 per cent in 2006.
The Ifo survey "underlines that fundamentally the euro area economy remains in good shape,'"said Elga Bartsch from the US investment house Morgan Stanley. "But it is clear that the headwinds are currently gaining momentum and, unless they blow over quickly, they will introduce downside risks to growth, inflation and interest rate forecasts," she said.
Asian demand help economy offset slump
Leading the Ifo rise was an increase in German industry's expectations of business conditions six months down the track, which nudged up to 99 from 98.2 in December.
However, underscoring the current economic uncertainty, the Ifo index component gauging German executives' assessment of the present situation dropped to 107.9 from 108.1.
While Germany's key export sector is expected to lose some momentum this year, solid demand from the world's key emerging economies in Asia, Eastern Europe and the Middle East is seen as helping to offset a slump in the US.
Moreover, increased pay packets for German workers this year after a protracted period of wage stagnation as well as a continuing fall in unemployment are also forecast to help underpin consumer demand.
The surprise jump in the January Ifo index added to the brighter mood prevailing on both German and European stocks markets after a highly volatile week in share trading and big falls in stock prices.
By mid-morning trading, Frankfurt's DAX index was up almost five per cent with Europe's blue-chip Stoxx 50 having gained nearly 4.0 per cent.
The rise in the Ifo is likely to ease some of the pressure on the European Central Bank to follow the lead of other major central banks, notably the US Federal Reserve, and cut interest rates to help shore up economic confidence and in response to the signs of slowing growth.