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German Business Confidence Hits 20-month High: Ifo

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German Business Confidence Hits 20-month High: Ifo

German business confidence rose to a 20-month high in December, as firms expressed greater optimism about future business prospects.

The Business Climate Index, courtesy of the Ifo Institute, increased from 109.3 to 109.5, the highest since April 2012. The monthly reading matched the median estimate of economists, who have taken notice of Germany’s gradual recovery. The index captures sentiment toward current conditions and future business expectations among 7,000 executives.

Business optimism among manufacturers rose to the highest level since spring 2011, although assessments of the current situation were less favourable. This is reflected in the Current Assessment indicator, which fell 0.4 points to 111.6. Export expectations among manufacturers fell slightly in December, although the outlook on international markets remained positive.
Business optimism continued to improve in the construction sector, as contractors expressed greater confidence in the current situation and future expectations. The same confidence wasn’t shared among wholesalers, where the current business climate was assessed far less positively.

“Germany’s economy is ending the year on a very strong note,” said Christian Schulz of London-based Barenberg Bank. “Strengthening German domestic demand should also help the Eurozone crisis countries pursue their export-led growth strategies successfully.”

Germany has increasingly relied on domestic demand to drive its recovery. Europe’s largest economy expanded 0.3 percent in the third quarter after 0.7 percent growth in Q2. Growth in the euro area cooled to 0.1 percent in the third quarter, as stagnation and high unemployment continue to threaten the currency region’s fragile recovery.

As domestic demand continues to strengthen, Germany’s economy will expand 1.9 percent in 2014, according to a recent Ifo forecast. Improvements in the global economy, particularly in the United States and other advanced industrialized countries, will continue to benefit German recovery.

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