German business confidence rises sharply

[July 23, 2010]  BERLIN (AP) -- Germany's business confidence is continuing its unexpected upward trend in July, showing the biggest increase since the country's reunification in 1990, according to a closely watched business climate index released Friday.

The Ifo index rose to 106.2 points from 101.8 points in June, posting its fifth consecutive increase. Business expectations for the coming half year across all sectors surveyed are also more optimistic than in June, Ifo President Hans-Werner Sinn said in a statement. The index reflecting six-month expectations increased sharply from 102.5 to 105.5.

"Germany's economy is again in party mood," the Munich-based institute said. Sinn called the July increase the biggest since Germany's reunification.

Analysts had been expecting a slight decline in the index, just as in June when the index also rose.

The results are another sign that Germany, Europe's largest economy, continues to emerge from the European economic downturn, as a healthier global economy helps boost the country's exports.

"The industry is recovering impressively from the preceding slump," UniCredit analyst Alexander Koch said. Germany's business model remains in full swing at the beginning of the second half of the year as "the tail wind still remains very strong," Koch added.

Against the backdrop of a strengthening recovery, the manufacturing industry's capacity utilization is now only slightly below the long-term average, Sinn said. The business climate for manufacturers "has brightened strongly" and their situation has clearly improved, he added.

So far, the government is officially predicting 1.4 percent growth in 2010, but officials say they expect the real figure could be 2 percent.

Chancellor Angela Merkel on Wednesday called "the economic upswing really robust" and the economy minister, Rainer Bruederle, proclaimed in parliament this month that Germany can be proud "that we are the economic locomotive for the whole European Union."

Timo Klein, an analyst with IHS Global Insight in Frankfurt, expects Germany's economy to maintain its momentum during the second half of the year.

"The Eurozone debt crisis has proven to burden the economic recovery only briefly," Klein said. His institute's current growth forecast of 2.0 percent for Germanys' GDP will have to be raised by at least two tenths, he added.

The euro was buoyed by the good news from its biggest economy as the 16-nation currency rose to $1.2934, up from $1.2884 in Friday morning European trading.

The trend in the manufacturing industry, construction business, retailers and the service industry also points to a planned slight increase in staff levels, Sinn said. This could be another boon for Germany's labor market, which has proven surprisingly robust throughout the economic crisis.

Economists point to government support for keeping workers on the job with shorter hours instead of laying them off -- a measure that kept more money in people's pockets and prevented a growth-killing spike in unemployment.

Germany's unemployment rate in June declined to 7.5 percent from 7.7 percent in May and the number of people registered as jobless was down 88,000 compared with May to 3.153 million.

The ongoing strong labor market recovery will support private consumption and therefore reduce Germany's dependence on exports, analyst Klein said.

[Associated Press; By JUERGEN BAETZ]

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