German business climate index climbs to one year high

09-24-2009 14:03

The German business climate index climbed to a one-year high in September, suggesting that the bloc’s wealthiest country, Germany, is recovering from the most intense slump since the Second World War. The Ifo Institute for Economic Research, headquartered in Munich, reported this Thursday that its business climate index, based on a study among 7.000 executives, climbed to 91.3 from 90.5 in August; the strongest level since September 2008, while economists forecasted a rise to 92, according to the median of 40 outlooks in a study. In March this year, the index showed a reading of 82.2; the weakest level in 26 years.

German business climate

The report regarding the German business confidence was released as the German chancellor, Angela Merkel, enters the last phase of her election campaign. German’s economy grew 0.3% in the three months through June from the first three months, which was fueled by recovering worldwide trade and the ‘scrappage program’. The nation’s central bank forecasts a “major recovery” for the third quarter, while the improvement may stagnate after stimuli run out and when the jobless rate increases.

Not-sustainable

Stefan Bielmeier, head of economic research at Deutsche Bank, commented: “On the whole, Germany’s economy is likely to improve during the next twelve months, mostly fueled by fiscal stimuli. It is possible that the economic revival cannot be sustained once the stimuli run out.”

Approved spending program

The German chancellor has approved a spending program that represents a value of approximately €85 billion ($126 billion) in order to generate economic expansion. The spending program consist of infrastructure spending, tax saving and a renewed investment in the cash-for-clunkers fund, which expired previously in September.

Structural complications

The gauge of executives’ expectations rose to 95.7 from 95, while the index of the present situation advanced to 87 from 86.2, the Ifo reported.
“The gap between expectations and the actual situation has become so big that I question the sustainability of the recovery. The German economy is very dependent on exports to other Eurozone nations, while several euro-area countries, such as Spain, are struggling with structural complications,” said David Milleker, leading economist at Union Investment.

1.5% economic growth

The Organization for Economic Co-operation and Development (OECD) forecasted that in 2010 the Irish and Spanish economy will shrink by 1.5% and 0.9% respectively. In the meantime, the Cologne-based IW economic institute projects that the German economy will expand by 1.5% in 2010 while it shrank approximately 4.5% this year.
The benchmark DAX share index rose more than 50% in comparison to March, while investor confidence in Germany improved to the strongest levels in more than three years this month.

Optimistic outlook

Bernd Scheifele, chairman of the managing board at HeidelbergCement, stated on September 22: “The economic outlook becomes more optimistic as the number of positive signs increases.” The German cement and building materials company, which emitted new shares with a total value of € 2.25 billion, will profit “clearly” from the stimuli measures by the administration, the chairman commented.