UPDATE 2-German business morale rises for third month in a row

Fri Jan 25, 2013 5:31am EST

* Ifo climbs to highest since June 2012
    * Fading fears of euro break-up, brighter outlook elsewhere
help
    * Economy to take back stage in election, if recovery
continues


    By Annika Breidthardt
    BERLIN, Jan 25 (Reuters) - German business morale improved
for a third consecutive month in January to its highest in more
than half a year, more evidence that Europe's largest economy is
gathering speed again after contracting late last year. 
    The Munich-based Ifo think tank said on Friday its business
climate index, based on a monthly survey of some 7,000 firms,
rose to 104.2 in January from 102.4 in December.
    That beat the median forecast in a Reuters poll of 40
economists for the index to climb to 103.0 and matched the
highest estimate in the poll. The data sent the euro to a fresh
11-month high against the dollar and Bund futures falling. 
 
    "The crisis is over. At least in Germany," said Carsten
Brzeski, economist at ING in Brussels. "The contraction in the
fourth quarter of 2012 seems to have been short-lived."  
 
    Germany's economy held up strongly during the first 2-1/2
years of the euro zone debt crisis but sputtered in the second
half of 2012 as firms postponed investment and exports suffered
due to a gloomy economic outlook in Europe and elsewhere.
    The economy shrank by 0.5 percent in the fourth quarter of
the year, the Federal Statistics Office estimated earlier this
month. But as concerns fade that the single currency could break
apart, and as the economic outlook elsewhere brightens,
economists are betting on a return to growth early this year. 
    "The news situation is good. The financial markets have
calmed. German firms are feeling that," Ifo economist Klaus
Wohlrabe told Reuters.
    Some German firms have already set their eye on other
markets to offset weakness in the euro zone. Sales at Beiersdorf
 rose by 4.7 percent in 2012 as the maker of Nivea
cream turned to Russia and Brazil to offset the weak climate in
its home market. 
    
    MORE UPBEAT ABOUT FUTURE
    Firms' expectations improved for the fourth month running as
companies become more hopeful about business this year. Their
views on current conditions also climbed, after falling last
month, increasing to a better-than-expected 108.0 from 107.1.
    Germany's rebound is not expected to come with a roar,
however and Wohlrabe said Ifo expected first-quarter growth of
0.2 percent. The government and Bundesbank expect 2013 growth of
0.4 percent, at the lower end of economists' forecasts. 
    Germany's central bank said this week that the slump should
be short-lived and that Germany's economy may already have
bottomed out, in contrast to the currency bloc as a whole, which
is in its second recession in four years.
    German private sector activity in January jumped to its
highest level in a year on brisk business in services and Chris
Williamson, economist at Markit, which compiled the data, said
that indicated the German economy had already seen the worst.
    Ordinary Germans have not felt much of the downturn as
unemployment remains low and wages are on the rise. As long as
that remains the case, the economy is likely to play only a
secondary role in the parliamentary election in September.
    Polls suggest popular centre-right Chancellor Angela Merkel
will win a third term, but given a slide in support for her Free
Democrat (FDP) allies, she may be forced to switch coalition
partners to hold power.
    "It looks as if strong growth of the past years and the
expected recovery are rather taken as a given than an
achievement of Merkel's coalition," Brzeski said.
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