Business confidence hits two-year high

Business confidence in Germany rose sharply to a near two-year high in April, the closely watched Ifo index showed Friday, in another sign of recovery in Europe's top economy.

Business confidence hits two-year high
Photo: DPA

The index rose to 101.6 points in April from 98.2 in March, smashing forecasts by analysts surveyed by Dow Jones Newswires, who were looking for a rise to 98.9 points.

The index has not been so high since May 2008.

“The German economy has shifted into a higher gear,” said Hans-Werner Sinn, president of the institute.

The survey of around 7,000 businesses is considered a reliable indicator of future economic performance.

“If the real economy now follows up on confidence indicators’ promises, the near future looks very bright,” said Carsten Brzeski, an economist from ING.

While a viciously cold winter is expected to have frozen growth in the first quarter of 2010, the economy as a whole is projected to grow by 1.4 percent this year, according to recently published government forecasts.

“Germany is growing again,” Economy Minister Rainer Brüderle told parliamentarians earlier Friday.

The country is recovering from its worst recession in more than six decades, with output shrinking by five percent in 2009.

The world’s second-largest exporter after China appears to be powering ahead, raising hopes that it could yet drag the rest of Europe with it.

“Neither cancelled flights due to the volcano eruption nor the Greek crisis stopped business sentiment from rising further strongly,” said Andreas Rees, an analyst from Unicredit.

“The German business locomotive is currently running at full steam.”

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.


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.


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.