Confidence among German businesses continued to improve, reaching a 16-month high in August, as companies are more satisfied with their current situation amid the economy moving up a gear.
The business confidence index improved more-than-expected to 107.5 in August, the highest since April 2012, from 106.2 in July, results of an Ifo Institute survey, based on 7,000 responses, showed Tuesday. Economists had forecast the index to rise to 107 in August.
Within the business sentiment, assessments of the current business situation rose for a second month in August, but firms were slightly cautiously optimistic about future developments, said the Munich-based think-tank.
The current assessment among survey participants climbed to 112 from 110.1, while it was forecast to rise moderately to 111. Similarly, the expectations index strengthened in August, to 103.3 from 102.4 a month ago. The expected score was 103.1.
Among manufacturers, business confidence rose considerably due to the brightening current situation assessment and future expectations. Firms expect stronger impulses from export business.
In wholesaling, the business climate strengthened notably in August. Wholesalers were more satisfied with their current situation. Moreover, expectations turned positive for the first time since April 2012.
By contrast, business confidence in retailing edged downwards. This was primarily due to somewhat less positive assessments of the current business situation, while business expectations brightened slightly.
Likewise, confidence in construction dropped, but it remained above its long-run average. Assessments of the current business situation are slightly less favorable than last month. Contractors are more cautious about future business developments.
Germany's service sector business confidence edged downwards this month. While assessment of the current situation remained clouded over somewhat, outlook was more optimistic.
The Ifo survey results added to the evidence that the German economy is gathering pace after stagnating at the start of the year. Domestic spending and investment boosted the economic growth to 0.7 percent in the second quarter.
The central bank projects a 0.3 percent expansion for this year. Bundesbank expects growth to return to normal and rates to be steady in the second half of 2013.
Nonetheless, Jennifer McKeown, senior European economist at Capital Economics said the recovery in Germany will not generate a big enough boost to pull the periphery out of recession for some time and neither will it cause a marked change in Germany's stance towards bail-outs or more permanent transfers to struggling euro-zone economies.
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