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Germany's Business Confidence Improves For Second Month


German business confidence improved for the second straight month in December as expectations for next six months counteracted the deterioration in current assessment, survey results from the Ifo Institute showed Friday.

Surpassing economists' expectations, the headline business climate index rose to a five-month high of 102.4 from 101.4 in November. The reading was forecast to climb to 102.

Among the component indices, the current conditions index dropped more-than-expected to 107.1 from 108.1. The December reading was the weakest since June 2010. By contrast, the expectations indicator rose notably to 97.9, the highest since May, from 95.2 a month ago.

Economists had forecast scores of 108 for current conditions and 96.4 for expectations.

The improvement in overall confidence stems from positive outcomes of the Purchasing Managers' survey and the ZEW economic sentiment survey. The recent PMI survey showed that the German private sector expanded in December after contracting for eight straight months, underpinned by service sector recovery.

Ben May at Capital Economics said the Ifo index points to economic stagnation in the near term. For now, the improvement is in sentiment, rather than actual activity, the economist added.

Bundesbank this week said it expects the economy to expand next year after logging a noticeable contraction at the end of the year.

The German economy is still in the course of its soft landing, ING Bank NV's economist Carsten Brzeski said. Private consumption on the back of Christmas shopping is unlikely to offset weaker exports and industrial activity.

In manufacturing, companies assessed their current situation as less favorable than a month ago, while business expectations showed their sharpest increase since August 2009, Ifo survey showed.

At the same time, both wholesaling and retailing survey participants were less satisfied with their current business situation and somewhat more sceptical about future developments.

Companies in the construction sector were more cautious in their assessments of the current business situation, but they were far more optimistic about the next six months. After two successive decreases, business climate for the service sector rose sharply to 14.1 and returned to September's level.

by RTTNews Staff Writer

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