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German business confidence rises

September 24, 2013

FRANKFURT, Germany (AP) — A closely watched index of German business confidence rose for the fifth month in a row in September, reflecting the improved prospects for Europe’s largest economy and the 17-country euro currency union.

The Ifo institute’s index, released Tuesday, edged up to 107.7 points from 107.6 in August. Market analysts had expected it to rise slightly more, to 108.0.

The index is based on a survey of 7,000 companies about how they think the situation is now, and how they see things going in the coming months. Economist Carsten Brzeski at ING said the results showed the economy was “stabilizing at a high level.”

Germany’s economy expanded 0.7 percent in the second quarter, helping the eurozone return to growth after six quarters of shrinking output. But recent figures for German industrial production and retail sales have been disappointing, raising concerns that the third quarter may not be as strong.

Brzeski said the Ifo figures should dispel those doubts.

“Today’s Ifo provides further evidence that fears about a sharp slowdown of the German economy in the second half of the year were overdone,” he wrote in a note to investors.

Holger Schmieding at Berenberg Bank said that while it was “slightly disappointing” the index fell short of market expectations, it was reassuring that domestic retail demand, along with exports, was supporting growth. He predicted the economy would expand 0.5 percent in both the third and fourth quarters, with some risk that the third quarter could be slightly less and the fourth quarter slightly more.

The eurozone is still struggling with excessive levels of debt in several of its member countries, including Greece, Ireland, Portugal, Spain and Italy. A promise by the European Central Bank to buy the bonds of indebted countries if they promise to fix their finances has calmed bond markets over the past year, removing fears that a government might be unable to pay its debts.

The ECB has cut its benchmark interest rate to a record low 0.5 percent and said rates will stay at that level or lower until the economy improves. Low rates can aid growth by cutting the cost of the credit companies need to expand.

Growth, however, remains weak after governments cut spending to reduce debt. The eurozone’s economy expanded 0.3 percent in the second quarter from the quarter before. Economists say stronger growth than that is needed to reduce unemployment, which is at a record of 12.1 percent.

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