German business confidence rises in October

[October 23, 2009]  FRANKFURT (AP) -- German business confidence rose for a seventh consecutive month in October as Europe's largest economy showed more signs of recovery and firms' outlook for exports improved, a survey found Friday.

The Ifo institute said its monthly business climate index edged up to 91.9 points in October from 91.3 in September. It was the highest reading since September 2008, when the index stood at 92.5 points.

Germany's export-fueled economy returned to modest growth in the second quarter following a deep recession.

Last week, the government and leading economic institutes revised upward their forecasts for this year and next. Both now say that the economy will grow by 1.2 percent next year after shrinking 5 percent in 2009.

A subindex measuring managers' view of their current situation edged up to 87.3 points in October from 87.1. Their outlook for the next six months rose more strongly -- to 96.8 points in October from 95.7, the tenth consecutive rise.

In the manufacturing sector, the Ifo said that "despite the appreciation of the euro, the firms see improved export opportunities."

The euro this week rose above the $1.50 mark for the first time in more than a year -- a development that threatens to make European exports less competitive abroad.

Companies "are utilizing their production capacities at a slightly higher pace than in the summer, although the utilization rate is still far below average," the Ifo said. It added that they "are planning to slow down the pace of staff reductions somewhat."

The overall business climate in the wholesale sector improved, while it was largely unchanged among construction firms and worsened in the retail sector.

Timo Klein, an economist at IHS Global Insight in Frankfurt, noted that the Ifo index remains below a long-term average of 96.0 and said it was "somewhat surprising" that companies' assessment of their current situation isn't improving more quickly.

"The ongoing improvement of expectations bodes well for a continuation of a strengthening recovery" next spring, he added -- but "risks for a temporary setback during 2010 remain sizable, so that a sustained return to solid economic growth appears unlikely ahead of late 2010.

The Ifo index is based on around 7,000 monthly responses from firms in manufacturing, construction, wholesaling and retailing.

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On the Net:

http://www.ifo.de/

[Associated Press; By GEORGE FREY]

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