Germans confident despite oil and euro trends
FRANKFURT: Germany's Ifo index of business confidence hit a 15-year high in April, data released Tuesday showed, confirming a strong upward trend that has taken root in the closely watched survey since the beginning of the year.
The Ifo index rose to 105.9, its strongest reading since April 1991, as the country's industrial sector brushed off high oil prices and a strengthening euro to express strong confidence in economic prospects for the next six months.
Economists said the data confirmed that Europe's largest economy, after a somewhat weak fourth quarter last year, staged a rebound that is set to continue into the middle of the year.
"The strong rise in business conditions shows that the economy will be gaining further momentum in the second quarter," a Goldman Sachs economist, Dirk Schumacher, said in a research note.
Still, the various components of the Ifo index indicated that Germany's recovery, while picking up, still lacked the broad base economists had hoped for.
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The manufacturing sector, fueled by strong global demand for German goods, picked up, as did construction, which benefited from growth in a long- dormant German real estate market.
But the retail sector, hurt by weak domestic demand, logged a slight setback in April.
The recovery has yet to make much of a dent in Germany's high unemployment rate, making Germans reluctant to open their wallets.
The Ifo index has risen strongly over the past three months, which led many economists in March to believe that the European Central Bank would move more quickly to raise interest rates to stem inflation pressures.
But after the ECB president, Jean- Claude Trichet, doused expectations for a rate hike in May during a news conference April 6, forecasters turned more cautious about reading too much into the Ifo survey.
"The ECB has largely made the near- term data flow irrelevant," said Ken Wattret, an economist at BNP Paribas in London. "They have told us they are going to tighten in June and not in May."
Still, with hard data expected to confirm through the summer that the economy of the 12-nation euro zone is growing steadily, though not spectacularly, the ECB still is likely to raise borrowing costs as the year wears on.
"The size and pace of the future increase in rates will be decided on the basis of the assessment of the risks to price stability," he said.
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