German business sentiment improves in August

[August 26, 2009]  FRANKFURT (AP) -- German business confidence improved for a fifth consecutive month in August as the economy showed signs of recovery from its deep downturn, a closely watched survey said Wednesday.

The Ifo Business Climate Survey, conducted by the Institute for Economic Research at the University of Munich, said its reading of German business sentiment rose to 90.5 points in August from 87.4 points in July.

Participants' expectations for the economy also improved in August, to 95 points from 90.4 points in July.

"With regard to business developments in the coming half year, the survey participants are less skeptical than in July," Ifo said in its report. "The German economy is slowly recovering from its descent."

Germany two weeks ago reported that its economy grew unexpectedly in the second quarter, bringing Europe's largest economy out of its worst recession since World War II, although the government warned the economy remains weak and may slow down again in coming quarters.

In the survey, firms saw their current business situation clearly less negatively for the second month in a row, but compared to year-ago figures still see their situation as worse off. The situation index showed a 1.7 point monthly improvement to 86.1 points in August but is far below the 102.9 points in August 2008.

Nevertheless, Ifo said while manufacturing firms are generally dissatisfied with current business, they no longer expect a worsening in the coming half year. Their plans for staff reductions aren't as sharp as they have been in the past, though remain clearly geared toward cuts in employment.

In retailing, the climate responses showed some improvement, as did outlooks for the next six months.

Also in the construction industry, the climate and current business improved somewhat though caution regarding future business outlook remained unchanged.

"Notwithstanding the latest impressive acceleration, the rally in business sentiment is likely to continue in the short term," UniCredit Economist Alexander Koch wrote in a note to clients.

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

In a separate report the Federal Statistical Office confirmed German import prices marked a 12.6 percent year-on-year decline in July, the steepest fall since February 1987.

The decline follows a 11.3 percent fall in import prices for June and a 10.4 percent fall in May.

The July decline was especially tied to the fall in energy prices which were nearly 43 percent lower than energy prices in July 2008.

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On the Net:

http://www.ifo.de/

[Associated Press; By GEORGE FREY]

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