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ECONOMY

Business confidence up for ninth consecutive month

German business confidence rose for the ninth month running in December, the closely watched Ifo survey indicated on Friday, in the latest sign that Europe's biggest economy is on the road to recovery.

Business confidence up for ninth consecutive month
Photo: DPA

The Ifo institute’s business climate index rose to 94.7 points from 93.9 points in November, narrowly beating expectations, the survey of around 7,000 German firms in manufacturing, construction, wholesaling and retail showed.

The result saw the index reach the highest level since July 2008, two months before the collapse of US investment bank Lehman Brothers sent the global financial system close to collapse and the world economy into reverse.

The firms were also more upbeat on the current business situation and on their expectations for the future, the Ifo said.

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

Jennifer McKeown from Capital Economics said that the Ifo survey was further evidence that the German economy is continuing to recover, albeit at a “fairly gradual” rate.

The result stood in contrast to recent figures showing that Germany’s recovery from its worst recession since World War II might have eased in the fourth quarter.

Industrial orders, for instance, fell 2.1 percent in October, their first drop in eight months, while output slipped 1.8 percent after two months of solid gains.

The Bundesbank central bank cautioned earlier this month that the latest economic data indicate that the country’s economic recovery was “likely less dynamic” at the start the final quarter of 2009.

Another survey, the ZEW investor sentiment index, fell in December for the third time running.

“December’s modest increase in the German Ifo index comes as a relief after the softer tone of some of the hard data lately,” McKeown said. “Although sentiment is now rising far more modestly than during the summer, the (Ifo) index points to a further sharp slowdown in the annual rate of economic contraction,” McKeown said.

The Bundesbank forecasts that German output will contract by around 4.9 percent this year before growing by 1.6 percent in 2010 and by 1.2 percent in 2011.

The recession has blown a huge hole in public finances, with Chancellor Angela Merkel’s government predicting it will have to take on a record €85.8 billion in new debt in 2010.

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ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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