German business confidence makes surprising climb higher

German business confidence makes surprising climb higher
Photo: DPA
Germany's Ifo business confidence index improved slightly in January, beating market expectations on Tuesday in a rare ray of light for Europe's biggest economy.

The Ifo indicator rose to 83 points in January from 82.7 points in December, its lowest ever reading, the Munich-based Ifo institute said. Economists polled by Dow Jones Newswires had forecast a fall to 81.3 points. While the firms surveyed had a gloomier view of their current situation than in December, they had a brighter outlook for the next six months.

Despite the apparent increased level of optimism in Germany’s business community, the head of the Ifo economic institute, Hans-Werner Sinn, warned against reading too much into the surprisingly strong survey.

“We can’t deduce from this that an economic turning point is in sight,” Sinn said.

Heinrich Bayer, an economist from Postbank, was similarly cautious. “One must be careful when interpreting this. One rise should not be over-estimated. For a turning point to have been reached, the result will need to be confirmed in the coming months,” Bayer said.

However, some analysts seized on the data to give a more bullish outlook for the German economy.

Alexander Koch from Unicredit said the “end of the free-fall in expectations is a strong ray of hope that the vicious circle is broken and the German economy will manage – not to rebound strongly – but to stabilise in the second half of the year.”

The index was published moments after Germany’s “grand coalition” government sealed a €50-billion ($66-billionr) economic stimulus package to stave off what is feared to be the country’s worst recession in 60 years.

The government predicted this month that Germany’s export-oriented economy – which entered a recession in 2008 – would contract by 2.25 percent this year, its biggest slump since World War II.

The International Monetary Fund is even gloomier, expecting a contraction of 2.5 percent this year.