German business confidence rebounds

German business confidence rebounds
By Ralph Atkins in Frankfurt
Copyright The Financial Times Limited 2009
Published: April 24 2009 10:27 | Last updated: April 24 2009 10:27
http://www.ft.com/cms/s/0/97b97e7a-30af-11de-bc38-00144feabdc0.html


A surprisingly sharp rise in German business confidence has provided further evidence that Europe’s largest economy is over the worst of its recession and is closer to returning to growth than previously thought.

The Munich-based Ifo institute reported its business climate index had rebounded this month to the highest level since November, while expectations about the next six months had returned to levels last seen in September.

The results pointed to a “clear deceleration” in the rate of economic contraction, said Hans-Werner Sinn, Ifo’s president.

Earlier this week an unexpectedly-robust rebound in purchasing mangers’ indices for Germany and the eurozone had also pointed to a marked decline in the rate of economic contraction.

With its high dependence on exports to power growth, Germany was one of the countries worst affected by the collapse in global confidence and demand after the failure of Lehman Brothers last September. Its downturn gained ferocity at the start of this year, but the latest data indicate that the second quarter decline in gross domestic product will be much more moderate.

Friday’s rise in the Ifo index – from 82.2 in March to 83.7 – was significantly larger than a modest revival seen in January. Moreover, index showed an improvement in businesses’ assessment of current conditions, as well as in expectations about the next six months.

Andreas Rees, economist at Unicredit, said the rise reflected fiscal stimulus measures and signs of stabilisation elsewhere in the world. “The signs are clearly mounting that the German economy will manage a turnaround in the second half of this year.”

Nevertheless, many economists remain sceptical. The country’s leading economic institutes warned in a report this week that Germany’s economy could continue to shrink at least until the middle of next year.

German unemployment is also expected to rise substantially this year, which could undermine confidence in the months ahead. Ifo warned that, despite the rise in business confidence, companies were still pressing ahead with job cuts.

Separately, French consumer spending data added to the more upbeat picture across continental Europe. Insee, the country’s statistical office, reported a stronger-than-expected 1.1 per cent rise in spending on manufactured goods in March. Car sales were particularly strong, helped by government subsidies for those trading-in old cars.