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Business confidence rises for fifth consecutive month

AFP · 26 Aug 2009, 13:34

Published: 26 Aug 2009 13:34 GMT+02:00

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The Ifo's closely watched business sentiment indicator rose for the fifth straight month to 90.5 in August with the biggest jump since the index was created in 1991, and experts said even better figures were to come.

"The latest rise in business sentiment takes place at a similar breathtaking pace as the ... collapse after the Lehman default," noted Alexander Koch at Unicredit.

He said that Germany, heavily dependent on exports, should get a boost as the global economy recovers from its worst downturn since the Great Depression in the 1930s.

"Notwithstanding the latest impressive acceleration, the rally in business sentiment is likely to continue in the short term," he said.

"The hard-hit export champion will now in turn benefit disproportionately from the pick-up in industrial demand around the globe," added Koch.

The rise in expectations caught analysts polled by Dow Jones Newswires by surprise. They had predicted a rise to 88.8 after a restated 87.4 in July. Last month, the July figure was given as 87.3.

"The German economy is slowly recovering from its downturn," said Hans-Werner Sinn, Ifo president.

The surprisingly strong gain is the latest in a string of positive indicators from Germany, which officially exited its worst recession in six decades with growth of 0.3 percent in the three months to June.

Another survey of financial market investors, the ZEW, pointed last week to better times ahead for Germany, while so-called "hard" data, such as industrial orders, have also been better than expected in recent months.

A further poll, published Wednesday in Stern magazine, showed that 39 percent of people thought the worst of the economic crisis was over, compared to only 12 percent who held that opinion one year ago.

With just over four weeks to go until German elections, the increasingly positive mood in the economy is likely to boost the campaign of Chancellor Angela Merkel, whose Christian Democrats are riding high in the polls.

She has said that the worst is probably over for Germany but that the road to recovery will be bumpy.

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Other economists warned against prematurely popping champagne corks.

"While the near term looks bright, there are still at least two impediments to a real recovery - the worsening labour market and a possible credit crunch," said Carsten Brzeski, senior economist at ING.

Although job losses have been stemmed by a government scheme offering incentives to firms to put employees on part-time work, unemployment has started to rise and experts have warned that worse is to come.

Finance Minister Peer Steinbrück said there were "clear indications" that credit was tight for big- and medium-sized firms, adding that he was considering low-interest state loans to cash-strapped companies.

"If the efforts of banks are not sufficient to supply the economy with enough fresh cash, the state will have to make use of other measures," Steinbrück told Handelsblatt business daily in an interview.

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