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German IfO Business Confidence Hits 10-Month High

German IfO Business Confidence Hits 10-Month High

Sentiment among German businesses improved to a ten-month high in February, fueling expectations that the economy could get back on its feet early this year despite widespread weakness in Eurozone economy.

The headline business climate index rose for a fourth straight month to reach 107.4 in February from January's revised reading of 104.3, a report released by the Ifo Institute showed Friday. The index was expected to see a more modest increase to 104.9.

This was the highest reading for the index since April last year and represented the biggest improvement since July 2010, according to the IFO. The German economy is regaining momentum, the think-tank said in the report.

"February's rise in the German Ifo business climate indicator leaves it consistent with a moderate recovery," said Jennifer McKeown, senior at economist at Capital Economics. "The current conditions index registered its first significant increase in this cycle, suggesting that businesses' relative optimism is feeding through to actual activity," the economist pointed out.

The current conditions index came in at 110.2 in February, higher than January's 108.1 and the expected reading of 108.5. The index measuring business expectations rose to 104.6 from 100.6 in the previous month. It was forecast to rise to 101.4.

The business climate indicator for the manufacturing sector rose sharply, specifically due to optimistic business outlook. Business climate in the wholesaling sector also improved notably after deteriorating last month.

At the same time, the business climate remained unchanged in retailing. In construction, confidence continued to rise sharply primarily due to a far more optimistic business outlook that reached its highest level since German reunification, the IFO said.

"Looking ahead, evidence is increasing that the contraction in the fourth quarter has been a one-off which never felt anything near a recession," Carsten Brzeski, an economist with the ING Bank NV, said. "With the improved outlook for the US and China, prospects for German exporters are also clearing off," he added.

In a survey released Tuesday, the Center for European Economic Research, or ZEW, said economic confidence among Germans rose significantly this month to the strongest level since April 2010 amid hopes that the situation may improve over the coming months.

Bundesbank expects the German economy to return to growth in the first quarter and sees 0.4 percent expansion for the whole of 2013. The economy contracted 0.6 percent in the final quarter of 2012.

As the still-unresolved debt crisis took its toll over Eurozone's largest economy, the 17-nation currency bloc moved deeper into recession at the end of 2012 with the GDP shrinking the most since the first quarter of 2009.

by RTT Staff Writer

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