Economists hailed the unexpected increases, with one saying that for Germany, Europe’s biggest economy, “the sky is the limit.”
Germany is profiting from strong global economic activity and a very loose European Central Bank monetary policy oriented towards weaker countries on the eurozone’s periphery like Greece, Ireland and Portugal.
In February, Ifo’s measure of business sector confidence hit a record 111.2 points, demonstrating that “the upswing in the German economy is robust,” Ifo President Hans-Werner Sinn said in a statement.
It was the index’s ninth consecutive rise and Ifo’s business expectations index for the coming six months also set a record at 107.9 points. The record showing resulted from a strong increase in companies’ assessment of their current conditions.
Commerzbank chief economist Jörg Krämer said the outcome was also the highest reading for the former West Germany since 1969.
For the 17-nation eurozone meanwhile, manufacturing and service activity in February hit levels last seen in July 2006, another closely-watched survey showed.
The purchasing manager’s index (PMI) compiled by the research group Markit jumped from 57.0 points to 58.4 points in February, owing to a sharp pickup in both the manufacturing and service sector indices.
“In addition, the most forward-looking index of the survey, (the new orders index) kept increasing, signalling that in March the survey is likely to post another rise,” BNP Paribas economist Clemente De Lucia said.
The PMI and Ifo indicators provide “evidence that the eurozone and German economic recoveries may have regained momentum at the start of the year,” Capital Economics European economist Ben May said.
Alexander Koch at UniCredit said “the sky is the limit” for Germany because “the mood in industry remains at a high altitude.”
Ifo’s survey of 7,000 German companies nonetheless found that in the core manufacturing sector, the climate index rose but expectations saw “a slight downward adjustment,” the statement said. But companies still planned to hire more workers, it added.
In the retail sector, sentiment “cooled off somewhat,” Ifo noted. But even taking that into account, ING senior economist Carsten Brzeski also felt that Germany’s economy was now “reaching for the stars.”
“Many factors seem to resemble the last episode of strong German growth between 2006 and 2008,” he said.
The German government anticipates 2011 growth of 2.3 percent and Economy Minister Rainer Brüderle said Monday: “The German economy has left the crisis
behind and is now in top shape.”
IHS Global Insight economist Timo Klein forecast that, barring a collapse in global momentum, the German economy could expand by 2.7 percent this year.
Business activity should keep expanding, thanks in particular to investment by German companies that are benefitting from increasing demand worldwide.