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German Ifo Business Sentiment Unexpectedly Improves

German Ifo Business Sentiment Unexpectedly Improves

Confidence among German businesses improved unexpectedly in November as firms were less pessimistic about future developments and expressed greater satisfaction with their current work, results of a survey by the Ifo Institute revealed on Friday.

The headline business climate index for the German industry and trade rose to 101.4 in November from 100 in the previous month. Economists had expected the reading to fall to 99.5. The improvement came after six consecutive declines.

The current conditions index advanced to 108.1 during the month from 107.2 in September. The latest reading was also higher than the expected reading of 106.3. The expectations index rose to 95.2 from 93.2 in October, which was in contrast to expectations for a decline to 93.

Releasing the survey results, Ifo said that the German economy is holding up in the face of the euro crisis.

The unexpected rise in November's German Ifo survey provides some relief, but doesn't alter the big picture of near-stagnation in the euro-zone's "growth engine", said Jonathan Loynes, Chief European Economist at Capital Economics.

The survey report showed that the business climate index in the manufacturing sector rose slightly following a six-month decline. The business climate brightened in retailing and wholesaling and significant recovery was recorded in construction.

"The increase came as a clear surprise but maybe only reflects typical German sobriety," Carsten Brzeski, an economist at ING Bank NV, said. "Even if domestic demand should lose some steam due to a weaker labour market, the risk for the economy of falling off the cliff looks very limited."

Also, "the latest signs of improvement from the U.S. and China were good news for German companies," he added.

A report from the Federal Statistical Office earlier today confirmed the 0.2 percent expansion of the German economy in the third quarter. While growth was largely driven by foreign demand and domestic consumption, investment was a major drag on GDP.

However, the rate of growth was the weakest recorded so far this year. Detailed data revealed a slowdown in exports and imports compared to that in the second quarter. Meanwhile, there was a moderate pick up in consumption.

The government expects the economy to grew 1 percent next year following a 0.8 percent expansion this year. The European Commission predicts 0.8 percent growth for both 2012 and 2013.

by RTT Staff Writer

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