Wednesday, April 25, 2007

Germany April Ifo Business Sentiment Surges To Near December Peak, Wednesday, April 25, 2007 9:29:48 AM

German business sentiment improved more-than-expected in April, a closely watched survey indicated Wednesday, as manufacturers remained upbeat, brushing aside a stronger euro.

The German Ifo business climate indicator for trade and industry stood at 108.6 for April, the Munich-based Ifo Research institute said. In March, the index showed a reading of 107.7. Economists expected the index to gain a point to touch 107.8 in April.

The Ifo Business Climate Index is computed on the basis of 7,000 monthly survey responses of firms in manufacturing, construction, wholesaling and retailing.

The Ifo noted that Germany is profiting from the extraordinary international investment boom, which due to the nation`s specialization, is having a stronger cyclical impact than in the other major European countries.

The headline index is holding very near its peak of 108.7 attained in December 2006. Business sentiment in the largest Euro zone economy enhanced for the second month in a row in April.

Among sub-indices, the index, which represents the current assessment of the economy, showed a reading of 113.2. Markets expected the gauge to edge up to 112.5 from 112.4 recorded in the prior month.

The gauge reflecting economic expectations moved up to 104.3 in April. Economists anticipated the index to climb to 103.5 from 103.2 logged in April. The current reading is the highest since April last year, when it was 105.3.

As a sector, business climate in manufacturing rose further in April. Manufacturers viewed the current as well as future business situation favorably. Moreover, manufacturing firms were “more optimistic regarding exports despite the stronger euro”, the Ifo stated. The European currency flirted with fresh two year-highs against the dollar on Wednesday.

Other sectors such as retailing and wholesaling also showed markedly brightened business climate during April. The Ifo noted that the sluggishness that resulted from the VAT hike earlier in the year continues to lose steam. This was evident from the fact that firms in both sectors gave more positive evaluation of current situation as well as six-month outlook. In the construction sector, the business climate remained rather unchanged.

Separately, the Ifo said business climate rose again in the German services sector “from an already high level.” While firms assessed the current business situation more positively for the second straight month, they were more optimistic on the six-month period ahead. That said, a decline was noticed in the number of firms that intend to recruit additional staff.

The upbeat news from Ifo was followed by a bullish growth forecast from the government. The German government raised its 2007 GDP growth forecast to 2.3% from 1.7% earlier. Growth for 2008 is estimated at 2.4%.

In a research note, BNP Paribas economists said, “All in all, this strengthening confidence is impressive. Further improvement takes place while the index has already reached a historical high, much above the peak of the previous business cycle (102.2 in May 2000). The German economy should however face notable headwinds (VAT hike, euro strengthening and US slowdown) over the year.”

The team went on to add that “Even if suffering from weak consumption, especially in the first quarter of the year, export and investment could induce buoyant manufacturing activity in the months to come.”
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