German business morale hits 18-month high in December

German business morale hits 18-month high in December
Business & Markets 2013
Written by Reuters
Wednesday, 18 December 2013 18:34

BERLIN (Dec 18): German business morale improved in December, hitting its highest level since April 2012, another sign that growth in Europe's largest economy may accelerate next year after a relatively subdued 2013.

Following strong ZEW and purchasing manager surveys this month, the Munich-based Ifo think tank said on Wednesday its business climate index, based on a monthly survey of 7,000 firms, rose to 109.5.

That was in line with the consensus forecast in a Reuters poll but up from 109.3 in November and also followed a bullish outlook from the Bundesbank, which said earlier this week that the economy would grow strongly this quarter and next.

Ifo economist Klaus Wohlrabe said the economy would grow by 0.3 percent in the fourth quarter before possibly accelerating to 0.5 percent in the first three months of 2014.

The improvement in business sentiment was largely driven by an upturn in the mood among construction companies and manufacturers, both of which had a weak start to 2013.

"December's Ifo survey is consistent with other survey evidence pointing to steady but unspectacular growth in the German economy," said Jonathan Loynes, chief European economist at Capital Economics in London.

The ZEW survey this week showed investor sentiment hitting its highest level since April 2006 and the purchasing managers' index showed the private sector growing for an eighth straight month. Consumer morale is also at a six-year high.

Having steamed ahead during the early years of the euro zone crisis, the German economy slowed in 2012 and had a subdued start to 2013 before bouncing back in the second quarter. Growth was slower but still solid in the third quarter and economists expect a similar result for the final three months of the year.

Ifo expects the German economy to grow by a modest 0.4 percent this year before picking up to 1.9 percent next year thanks to an improving global environment and favourable conditions at home.

Reflecting the improved mood, Daimler said this week its Mercedes-Benz division will push output to a new record this year as German plants are running extra shifts to meet strong demand for new compact models as well as the overhauled S-Class flagship sedan.

A sub-index for firms' assessment of their current situation slipped to 111.6 from 112.2 last month. The reading for their business expectations rose to 107.4 from 106.4.