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German Business Morale Strengthens To 7-Month High

German Business Morale Strengthens To 7-Month High

German business sentiment brightened up more than expected to a seven-month high in February as companies turned more optimistic about future and assessed the current situation as favorable, results of a closely watched survey suggested Thursday.

The notable improvement in confidence adds to evidence that the economy will avoid a recession at the start of the year.

According to the Munich-based Ifo institute, the business confidence index rose for the fourth month to 109.6 from 108.3 a month ago, and exceeded economists' expectations for a score of 108.8.

Likewise, the expectations index improved in February for the fourth month to 102.3 from 100.9. The expected level was 102.

The current conditions index came in at 117.5, up from 116.3 in January and also stayed well above the consensus forecast of 116.5.

Manufacturers' business outlook improved for the third month, while their view on the current business situation was less favorable. They continue to receive positive impulses from export business. Moreover, manufacturers are planning to increase their staff numbers.

The business climate brightened clearly in retailing and wholesaling. The business situation improved in February and also firms in both segments expressed slightly more confidence about business expectations than in January.

In the construction sector, current business situation as well as expectations for the six-month ahead period improved in February. Service providers were also more satisfied with their current business situation and assessed the six-month outlook more positively.

The survey provided further evidence that the economic contraction at the end of last year was only a brief stopover, ING Bank Economist Carsten Brzeski said. Austerity measures in the rest of the Eurozone and the February freeze cannot shatter German business optimism, the economist observed.

However, Capital Economics European Economist Ben May said the Ifo index may be painting an overly favorable picture. With global demand growth likely to be weaker than in 2011 and the euro pretty strong, 2012 will be a challenging year for exporters.

May continues to think that the German economy will probably stagnate this year and that worse may be yet to come in 2013.

The Bundesbank in its latest monthly report said economic outlook brightened again in Germany. The cyclical forces are expected to boost activity in the spring. In the fourth quarter of 2011, the German economy shrank for the first time since the first three months of 2009.

According to the latest Purchasing Managers' survey, the German private sector maintained growth in February, but job creation was the slowest in almost two years as new orders failed to gain traction.

by RTT Staff Writer

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