* Manufacturers benefit from better export prospects
* Ifo says German economy has shifted up a gear
* Fourth monthly rise is welcome news for Merkel ahead of
By Annika Breidthardt
BERLIN, Aug 27 A pick-up in manufacturing drove
German business sentiment to its highest level in 16 months in
August, adding to evidence that Europe's largest economy is
bouncing back from a brief slowdown.
The Ifo think-tank said on Tuesday its business climate
index, based on a monthly survey of some 7,000 firms, rose to a
better-than-forecast 107.5 in August, the highest level since
That was up from 106.2 in July and came in just below the
highest estimate in the Reuters poll of 33 economists of 107.8.
"The German economy moved up a gear," said Ifo economist Kai
Carstensen. "Companies are more satisfied with their current
business situation. Their optimism regarding future business
developments - although slightly cautious - also grew."
The Ifo's fourth consecutive rise will be welcome news for
Chancellor Angela Merkel. With growth returning, consumers
upbeat, the labour market strong and inflation largely under
control, the economy should support her bid for a third term in
the election on Sept. 22.
A bastion of strength in the early stages of the euro zone
crisis, the German economy shrank at the end of last year and
narrowly avoided recession early in 2013.
But it grew at its strongest rate in more than a year in the
second quarter, helping the euro zone as a whole out of its
1-1/2 year recession.
Klaus Wohlrabe, another Ifo economist, told Reuters the euro
zone recovery was paying off for German firms. Manufacturers
expected their exports business to improve and said their
current business conditions were "considerably better than last
Retailers and construction firms were less upbeat than last
month however. Other data also point to a pick-up in the German
economy, but have signalled that export expectations remain
subdued. Large parts of the euro zone are still in recession.
"We doubt that the recovery will be as rapid (as Ifo
suggests)," said Jennifer McKeown at Capital Economics. "Other
surveys like the PMI (purchasing managers' index) point to far
more modest growth and exports will continue to be held back by
weak demand from key markets elsewhere in the euro-zone."
Many economists now believe that the German economy will
expand at a faster rate than the government's current forecast
of 0.5 percent growth this year, but expect a slight slowdown
from the pace in the second quarter.
"Even the export outlook is brightening, despite the
emerging market woes, China's slowdown and Japanese competition.
Stabilising euro zone and growing U.S. demand, which together
account for two-thirds of German goods exports, should offset
weaker developments elsewhere," said Christian Schulz of
Corporate results have been a mixed bag. Of Germany's 30
biggest companies, just over a third reported second-quarter
financial results that missed analysts' expectations, while
fewer than a third beat consensus.