German business confidence rises in November

[November 24, 2010]  BERLIN (AP) -- German business confidence has unexpectedly risen to its highest level since reunification during November as Europe's largest economy continues to grow strongly in spite of the financial problems plaguing some other eurozone members, a closely-watched survey found Wednesday.

The Ifo Institute's confidence index rose to 109.3 in November, up from a revised 107.7 in October. That's the first time it has been over the 109 mark since the reunification of East and West Germany in 1990.

"Both the current business situation as well as the business outlook for the coming half year have been assessed more positively by the firms," said Ifo President Hans-Werner Sinn. "The upswing in the German economy is gaining more and more strength."

Germany's economy has made an impressive comeback after contracting by a massive 4.7 percent last year.

Exports have been the main reason behind the rebound but the German economy is now being helped by signs of healthier domestic demand as the number of jobless has fallen below 3 million. Unemployment had topped 5 million months before Chancellor Angela Merkel took office in 2005.

The government is now predicting full-year growth of 3.4 percent in 2010, cooling to 1.8 percent in 2011. Earlier this month, the government's independent panel of economic advisers issued an even more optimistic forecast of 3.7 percent this year and 2.2 percent in 2011.

Timo Klein, an economist with IHS Global Insight, said analysts had been expecting the Ifo index to drop or at least stagnate given the current difficulties facing other eurozone members.

"This remarkable performance in light of ongoing concerns about the U.S. economy and about several eurozone partners that are grappling with a debt crisis testifies to the inherent strength of the German economy at present," he said.

"Unusually low interest rates and the moderate level of the euro are certainly supportive factors. Assuming these conditions broadly continue during 2011, and global growth momentum does not exactly collapse, German economic growth will stay robust during 2011," Klein added.

Merkel did signal a note of caution Tuesday when she signaled that the euro faces serious risks from the highly indebted countries. Her comments came in the wake of Ireland's request for financial help at the weekend.

Still, she told lawmakers on Wednesday that the prognosis for Germany remained good and that the country has "an innovative economy, dynamic mid-sized businesses and hardworking employees."

"We will probably have 3.4 percent growth this year and also hope for reasonable growth over the coming years," she said during a budget debate in parliament. "The number of unemployed has sunken under three million ... we now have more people working than we did before the crisis."

Economist Peter Morici, a professor at the University of Maryland, suggested that the spinoff effects of the economic troubles in other eurozone countries -- which helped push the euro currency to a two-month low in Wednesday -- could actually be helping Germany's export-based economy.

"Germany benefits from an undervalued euro for its economy by being grouped with Spain, Portugal, Ireland, Greece and perhaps Italy, whose fiscal woes pull down the euro," Morici said in a research note. "Were Germany on an independent Deutsche Mark, its currency would trade much higher against the dollar than the euro, Germany's trade surpluses with the United States and its southern neighbors would be much smaller, and the fiscal woes of those southern countries would be much more manageable."

A more detailed look at the Ifo figures shows that businesses' assessment of their current situation rose to 112.3 points from 110.2 in October. Expectations for the next six months, meanwhile, rose to 106.3 from 105.2.

In the manufacturing sector, the index rose to 25.1 in November from 21.7 the month before, the wholesaling sector saw a rise to 22.4 in November from 19.5, and the retailing sector bumped up to 13.3 from 9.2. The construction sector rose, but still remained in the negative, moving up to minus 14.8 in November from minus 16.4 in October.

The Ifo business climate indicator for the service sector rose to 23.4 from 21.4 in October.

The services sector survey is based on responses from some 2,500 companies, while the overall business climate index is based on around 7,000 monthly survey responses of firms in manufacturing, construction, wholesaling and retailing.

[Associated Press; By DAVID RISING]

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