UPDATE 1-German business morale improves, points to strong Q3 growth
By Michelle Martin
BERLIN, Sept 24 (Reuters) - German business morale improved slightly to its highest level in 17 months in September, suggesting Europe's largest economy is staging a firm recovery after a contraction in late 2012 and a weak start to this year.
The Munich-based Ifo think tank said on Tuesday its business climate index, based on a monthly survey of 7,000 firms, rose to 107.7. It came in below the consensus forecast in a Reuters poll for a reading of 108.2.
German Bund futures rose to a session high, the euro dipped against the dollar and European stocks erased gains after the Ifo number, which compared with a revised reading of 107.6 in August.
"The German economy is gaining speed and growth in the third quarter should again be robust," said Ralf Umlauf, economist at Helaba.
The survey will be welcome news for Chancellor Angela Merkel's conservatives, who achieved their strongest score in more than 20 years in a national election on Sunday after benefiting from the relative strength of the economy but are just short of enough votes to rule on their own.
"On the political side, it's now important to form a government able to act in order to prevent potential strain on the mood from a cliffhanger," said Umlauf.
UPBEAT ABOUT FUTURE
Europe's economic powerhouse, which put in a stellar performance during the early years of the euro zone crisis, weakened last year but bounced back in the second quarter of 2013, when it grew by its strongest rate in more than a year.
The rebound was largely due to robust domestic demand and weather-related catch-up effects. Economists generally expect slower but nonetheless decent growth between July and September.
The Ifo survey showed firms became more upbeat about their future prospects, with business expectations improving against the previous month. Manufacturers were the most optimistic about their future than any time in the last two years, but overall companies were more pessimistic about their current situation.
Some major German companies have been downbeat of late and announced strategies designed to counter weak European demand. Lanxess aims to cut costs and slash 1,000 jobs while Volkswagen plans to step up overseas operations.
The Ifo survey showed companies expect exports to pick up.
The German government is relying on domestic demand to support growth this year as exports weaken. The Ifo survey strengthened those hopes by showing retailers more upbeat about their business outlook than at any point since February 2011.
Other recent surveys have shown investor sentiment brightening and the private sector expanding at its fastest rate since January. But the latest hard data has been disappointing, with exports, industrial orders and output all falling in July.
The German economy nonetheless remains the envy of euro zone peers like Spain, where recent data has shown industry output falling for a 23rd straight month, and Greece where unemployment hit a record high in June.
The German government expects growth of 0.5 percent this year.
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