German business morale has hit its highest level in nearly six years this month, suggesting company executives in Europe’s largest economy are brushing off concerns about the threat of rising protectionism and Germany’s own election issues.
The surprisingly strong business climate index, published yesterday by the Munich-based Ifo economic institute, added to signs that the German economy is firing on all cylinders at the start of this year.
Ifo said its business climate index, based on a monthly survey of about 7,000 firms, rose to 112.3 from an upwardly revised reading of 111.1 last month.
“Wow! Nobody expected such a clear rise,” LBBW chief economist Uwe Burkert said. “The concerns about Brexit, Trump and the upcoming elections in France seem to have disappeared.”
However, he added: “In my opinion, this carelessness is somewhat exaggerated.”
Nordea economist Holger Sandte said the numbers were pointing to an overall economic growth rate of about 2 percent this year.
Businesses appear to be completely unfazed by “America First” protectionist rhetoric in Washington, European politics and even Germany’s own election cycle, which will decide later this year whether German Chancellor Angela Merkel remains in charge.
“The political uncertainties don’t affect the German economy,” Ifo economist Klaus Wohlrabe said.
Ifo’s business climate reading was the highest since July 2011 and it came in stronger than a Reuters consensus forecast of 111.0, surpassing even the highest forecast.
“The upswing in the German economy is gaining impetus,” Ifo chief Clemens Fuest said in a statement.
Managers’ assessment of the business situation improved, also reaching its highest level since July 2011, and firms also expressed greater optimism about the months ahead.
The rise in the headline figure was driven by improved sentiment in manufacturing, construction and retailing, while the business climate in wholesaling deteriorated.
In construction, assessments of the situation reached their highest level since 1991 as a growing population, rising wages, higher job security and record-low borrowing costs are driving a property boom in Germany.
The Ifo index follows the release of Markit’s Purchasing Managers’ Index on Friday that showed Germany’s private sector grew at the fastest pace in nearly six years this month, driven mainly by strong demand for manufactured goods from the US, China, Britain and the Middle East.
The upbeat sentiment indicators were underpinned by a series of strong economic data released earlier this month, suggesting that Europe’s biggest economy had a robust start to the year.
German industrial output rose more than expected in January, while a jump in imports surpassed an also surprisingly strong increase in exports that month.
That points to an accelerated growth rate in the first quarter of the year after the German economy grew by 0.4 percent in the final three months of last year, driven by soaring private consumption, increased state spending and construction.
Germany’s GDP expanded by 1.9 percent last year, the strongest rate in five years.
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