German Business Confidence Increases

German business confidence rose for the fifth month in a row, according to the results of a survey by the Munich-based Ifo institute. It rose to an eight-month high in March, suggesting that Europe’s largest economy will return to growth despite the reduced demand for its exports.

The Ifo business climate index, which is based on a survey of 7,000 executives, rose to 109.8 in March from 109.6 in February. Ifo’s gauge of the current situation was unchanged at 117.4, while an index measuring executives’ expectations grew from 102.4 to 102.7. Ifo’s retailing index jumped from 3.7 to 10.6, offsetting declines in gauges of manufacturing, construction and wholesaling. The Ifo increase was driven by the retail sector, showing that the domestic economy is helping Germany to withstand the external turmoil caused by the euro zone debt crisis.

Some economists noted that this month’s Ifo index rise was the smallest in the past five months, suggesting a potential decline in optimism regarding the German economy recovery. The recent data on the euro zone’s largest economy has been mixed. Germany’s GDP shrank 0.2 percent in the final three months of last year, but economists expect growth to pick up later this year. Last week, a report showed that German manufacturing activity contracted in March, and government and households reduced their spending.

Economists’ expectations were that the Ifo index would remain unchanged from the February level of 109.6. The euro strengthened after the report was released earlier today.

Sources: Bloomberg and BBC

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