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German business morale at 2-year high

Friday, February 22 10:43:03

German business morale surged at its fastest pace in over two years in February, pushing higher for a fourth consecutive month and pointing to a solid recovery in Europe's largest economy after a dismal end to 2012.

The Munich-based Ifo think tank said today its business climate index, based on a monthly survey of some 7,000 firms, rose to 107.4 in February, up from a revised 104.3 in January.

That was the biggest one-month rise since July 2010 and beat even the highest estimate of 106.2 in a Reuters poll of 41 economists, which had a median forecast of 105.0. The euro and European shares rose after the data, while German bond futures fell.

Germany's economy shrank by 0.6 percent in the fourth quarter, succumbing to a sharp fall in demand from its euro zone trading partners, but economists expect the gloom to be short-lived and do not see Germany slipping into a recession, defined as two quarters of contraction.

"German economic confidence surveys seem to be showing more signs of economic spring, but the economy is still struggling with a massive millstone round its neck, the rest of the beleaguered euro zone economy," said David Brown of New View Economics.

Ifo itself expects gross domestic product (GDP) growth of 0.2 percent quarter-on-quarter in the first three months of the year.

Ifo's subindex on current conditions rose to 110.2 from 108.1 in January, while a gauge of expectations shot up to 104.6 from 100.6.

Still, while sentiment indicators now point to a solid first-quarter rebound in Germany, they have not yet been backed up by much hard data. The most recent export, industrial orders and output figures point to only a slight uptick. Reuters