October 25, 2017 / 8:14 AM / a year ago

Euphoric German businesses brush off Brexit, coalition blues

BERLIN (Reuters) - A euphoric mood among German constructors and manufacturers drove business confidence to an all-time high in October, a survey showed, reflecting optimism that an upswing in Europe’s largest economy has further to run.

The Munich-based Ifo economic institute said on Wednesday its business climate index, based on a monthly survey of some 7,000 firms, rose to 116.7 from an upwardly revised 115.3 in September.

Ifo said a continuing recovery in the euro zone was helping German exporters feel more positive. This was especially true for capital goods manufacturers and mechanical engineering firms.

“Companies are very optimistic about the months ahead. They also upwardly revised their very favorable assessments of the current business situation,” Ifo chief Clemens Fuest said in a statement. “Germany’s economy is powering ahead.”

Ifo economist Klaus Wohlrabe said the economy was unfazed by complex coalition talks that Chancellor Angela Merkel has embarked on with two other parties after her conservative bloc lost ground in a national election last month.

The record high reading, which came after two consecutive monthly falls, beat a Reuters consensus forecast of 115.2.

FILE PHOTO - People walk through the Mall of Berlin shopping centre during its opening night in Berlin, September 24, 2014. REUTERS/Thomas Peter/File photo

Wohlrabe added that companies also appeared to be taking in their stride Britain’s scheduled departure from the European Union, a standoff between the Spanish government and the region of Catalonia and U.S. tax reforms.


If the Ifo indicator rose again in November, a change in the growth forecast for Europe’s largest economy could be needed, Wohlrabe said.

Leading German economic institutes this year raised its 2017 forecast to 1.9 percent, from 1.5 percent previously.

A survey published by His Markit this week showed Germany’s private sector posted the highest increase in new orders in 6-1/2 years in October.

Record-high employment, rising real wages and ultra-low borrowing costs are driving a consumer-led upswing that helped Merkel win a fourth term in office on Sept. 24.

Commerzbank chief economist Joerg Kraemer said the positive cycle in Germany should continue thanks to the ultra-low interest rate environment created by the European Central Bank.

“We are not in a normal economic cycle,” he wrote in a note to clients. “There are no disruptions (expected) as the monetary policy of the ECB, which is too loose for Germany, will push the economy forward for another couple of years.”

Additional reporting by Joern Poltz and Michelle Martin; editing by John Stonestreet

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