German business confidence rises in March
by Daniel Mason
Business confidence in Germany rose for the fifth month in a row in March, according to a leading survey, defying economists' expectations and despite recent mixed data on the eurozone's biggest economy.
The business climate index, published by the Munich-based Ifo Institute and based on feedback from 7,000 firms, was up to 109.8 – representing an eight-month high and a small increase on February's figure of 109.6. Economists had forecast that confidence would be stagnant, separate Reuters and Bloomberg polls showed.
Jennifer McKeown, senior European economist at Capital Economics, said it showed that the German economy remained robust – but the latest rise in the indicator was the smallest in the past five months, hinting at waning optimism. Last week, data revealed that manufacturing activity declined in March while the economy as a whole contracted 0.2 per cent in the last quarter of 2011. However, unemployment stands at a two-decade low.
"While exports are faring well, German consumers are still not really spending despite the resilience of the labour market," said McKeown. "In all, while Germany will continue to outperform other countries in the eurozone, any recovery will not be strong enough to pull them out of recession. We suspect that the economy will do little more than stagnate this year." The economy was "barely expanding", she added.
Also reacting to the Ifo data, Timo Klein, senior economist at IHS Global Insight, pointed to mixed perceptions in individual sectors – with a "large bounce" in retail and a boost in export expectations offsetting modest declines in manufacturing, construction and wholesale sentiment. He said that overall it provided "reassuring evidence that the German economy will not be thrown off track again due to the recent rise in oil prices or lingering eurozone debt crisis risks", and predicted growth this year of 0.7 per cent.
Meanwhile German Chancellor Angela Merkel is expected to reverse her opposition to increasing the size of the eurozone's firewall against debt crisis contagion. On Friday, euro area finance ministers will discuss whether to run the new permanent €500bn European Stability Mechanism in parallel with the remaining capital in the European Financial Stability Facility, the temporary fund that was used to bail-out Greece, Portugal and Ireland, for one year before the latter is phased out. The ESM is due to be established in July.
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