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Forex: German Ifo Business Climate Rises To 15-Month High In November
11/24/09 07:25 am (EST)

(RTTNews) - German business confidence increased for an eighth consecutive month in November to reach a fifteen-month high, a closely watched report showed Tuesday, underlining that recovery is strengthening in the biggest Eurozone economy.

The business climate index rose to 93.9 in November from 92 recorded in October, the Munich-based Ifo Institute for Economic Research said. Economists had forecast an increase to 92.5.

"Obviously, the German industry is bouncing back," ING economist Carsten Brzeski said. "Some sectors have already outweighed half of the crisis-related losses." The economist noted that Germany is likely to continue recovery in the fourth quarter on healthy economic fundamentals.

The business climate has clearly improved in manufacturing. Wholesale and retail sectors also showed some improvement, but the business climate index dropped in the construction sector.

Ifo's current conditions index climbed to 89.1 from 87.4, more than the expected reading of 88. The current business situation for manufacturers is noticeably less unfavorable than in October.

Retailers have also appraised their current business situation somewhat more favorably, the survey showed. In wholesaling, the business situation remained largely unchanged in November. Current business conditions in construction was unchanged from October.

Similarly, the expectations index increased to 98.9 from 96.8, above the consensus forecast of 97.3. Manufacturers' assessments of the six-month business outlook were once again positive. They have also given more positive appraisals of their export opportunities. Their personnel plans are less strongly geared to staff reductions than before.

In both distribution sectors, the survey participants are less critical with regard to developments in the coming six months. At the same time, constructors have expressed much more reserve regarding their business outlook. "Germany's economy should also post considerable growth in the fourth quarter and the chances of a strong first quarter next year are also increasing," Commerzbank analyst Ralph Solveen said.

Earlier in the day, a second estimate from the German statistical office showed that the largest Eurozone economy expanded 0.7% in the third quarter from the previous quarter, following the 0.4% increase seen in the second quarter. The economy exited recession in the second quarter, following four straight quarters of negative GDP growth.

In the near-term, however, the pace of growth is likely to slow, according to the government. Last week, Germany's Finance Ministry pointed out that the economy could grow at a slower pace in the fourth quarter, as uncertainty in the job market and income levels hit private spending.

Moreover, the ministry pointed out that the strengthening of the euro could erode competitiveness of firms. Finance Minister Wolfgang Schaeuble said on November 20 that it would be premature to say that the economy has overcome the crisis. Hence, it would be too early to remove stimulus measures now, he said.

The Organisation for Economic Co-operation and Development or OECD recently said the German economy would grow 1.4% next year after contracting 4.9% this year. In October, Germany's Economy Ministry predicted growth of 1.2% in 2010 after a 5% contraction this year.