German business sentiment rises in February

The skyline with its financial district is photographed on early evening in Frankfurt
The skyline with its financial district is photographed on early evening in Frankfurt, Germany, September 18, 2018. REUTERS/Kai Pfaffenbach
  • Business climate index at 91.1 vs expected 91.2
  • Unexpected fall in current situation index
  • Analyst: No reason to start partying

BERLIN, Feb 22 (Reuters) - German business morale improved in February for the fourth consecutive month, adding to signs that Europe's largest economy is recovering despite the energy crisis and high inflation, a survey said on Wednesday.

The Ifo institute said its business climate index stood at 91.1 following a revised reading of 90.1 in January.

A Reuters poll of analysts had pointed to a February reading of 91.2.

"The German economy is gradually working its way out of a period of weakness," said Ifo President Clemens Fuest.

Business sentiment is forecast to continue improving in the coming months, according to Union Investment's chief economist Joerg Zeuner.

"This is because the economy is expected to brighten up towards the summer, as declining inflation and lower energy prices will no longer have such a strong impact on consumers' purchasing power," Zeuner said, adding that this should benefit the retail sector.

LBBW's Jens-Oliver Niklasch forecasts an improvement in the economic situation, although he warns that "minor setbacks are to be expected," particularly in the construction sector and parts of the automotive industry.

Expectations for the next six months improved considerably, rising to 88.5 in February from 86.4 in January. However, the current situation component weakened, falling to 93.9 in February from 94.1 in January, falling short of analysts' expectations of a rise to 95.0.

"The continued slight decline in the assessment of the current business situation makes us pensive" despite the rise in the business climate index, said Commerzbank chief economist Joerg Kraemer.

"The second monthly drop in the current assessment component shows that recession risk in the first quarter is still real," ING's global head of macro Carsten Brzeski said.

Germany's economy contracted by 0.2% in the fourth quarter. If it shrinks again in the first quarter, Germany would be in a technical recession, commonly defined as two successive quarters of contraction.

"There is no reason to start partying," Brzeski said.

According to Ifo economist Klaus Wohlrabe, private consumption will weaken in the coming months, but he also sees some positive signals: The proportion of companies planning to raise their prices in the next three months decreased further in February, and supply bottlenecks are easing.

Slightly fewer companies in Germany - 45.4% - complained about supply chain bottlenecks in February compared to January, when the percentage stood at 48.4%, he said.

"The German economy will not get around a recession, but it will be a mild one," Wohlrabe said on Wednesday.

Reporting by Rachel More, Miranda Murray and Maria Martinez, Editing by Friederike Heine and Raissa Kasolowsky

Our Standards: The Thomson Reuters Trust Principles.

Thomson Reuters

Maria Martinez is a Reuters correspondent in Berlin covering German economics and the ministry of finance. Maria previously worked at Dow Jones Newswires in Barcelona covering European economics and at Bloomberg, Debtwire and the New York Stock Exchange in New York City. She graduated with a Master of International Affairs at Columbia University as a Fulbright scholar. Contact: +34685873768