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German Sentiment Strongest in 17 Months

The Munich-based Ifo think tank said on Friday its business climate index, based on a monthly survey of some 7,000 firms, rose to 94.7 from 93.9 in November. A Reuters poll of economists had forecast the index would show a reading of 94.5.

“Today’s good Ifo reading completes a positive end to a horrible year,” said Carsten Brzeski, economist at ING Financial Markets. “All the ingredients are there to make 2010 a year to look forward to.”

The December headline reading was the highest since July 2008. A current conditions index rose to 90.5 from 89.1 in November and a business expectations index edged up to 99.1 from 99.0 a month earlier.

“After the dramatic economic collapse last winter, these survey results should bring some Christmas cheer,” Ifo said in a statement.

Ifo economist Klaus Abberger said the European Central Bank was unlikely to raise interest rates before the second half of 2010. Other analysts said Ifo remained at a relatively low level, pointing to no need for the central bank to act now.

“The ECB is not under pressure to shift gears on rates in the foreseeable future,” said Ulrich Wortberg 
at Helaba.

Bearing Up Well

Germany pulled out of its deepest post-war recession in the second quarter, when the economy grew by 0.4 per cent, and the expansion gained pace over the following three months, posting a 0.7 per cent increase on the quarter.

German exporters have profited from firmer foreign demand. An Ifo component index for the manufacturing sector rose to -8.8 from -11.1 in November.

“The further increase in sentiment in the manufacturing sector is an encouraging sign that Germany’s exporters are bearing up well against the strong currency, although it remains at a low level,” said Jennifer McKeown, at Capital Economics.

A retailing component index registered -12.3 after -13.3 in November. UniCredit economist Alexander Koch said retail was weak, showing “a lot of people are holding onto their money.”

“Presumably, the reason for that is that people fear a rise in unemployment over the coming year and therefore disposable income for consumption will shrink,” he said.

Germany’s recovery is still seen as fragile and the Economy Ministry said on Thursday the economy likely slowed in the fourth quarter.

The government has forecast the economy to grow by 1.2 percent next year, though Finance Minister Wolfgang Schaeuble has said that projection is “very cautious”.

Schaeuble presented a draft 2010 budget on Wednesday that foresees a 7.3-per cent rise in federal government spending to €325.4 billion. He said the budget aimed to counteract the dramatic economic slump and avoid worse.

“The coming year will be extremely difficult. Very different developments are expected on markets around the world,” Volkswagen’s sales and marketing chief Detlef Wittig said last week.