German Business Sentiment Brightens

27 November 2006

MUNICH: German business confidence is at an unexpected 15-year high, despite a slowdown in economic growth, according to the Ifo Institute's business climate indicator which rose from 105.3 in October to 106.8 this month.

The index's level matches that reached in June but otherwise is the highest since February 1991. Comments Ifo president Hans-Werner Sinn: "These results mean the upswing is expected to continue."

Figures from the German statistical office show the economy grew 0.6% in the three months to October, down from 1.1% in the previous period. Despite this, output is still 2.3% higher than a year ago with both exports and domestic demand improving.

The slowdown may be a hangover from the robust previous quarter when the country benefited from hosting the soccer World Cup tournament.

The planned introduction of higher VAT rates may also be skewing Germany's figures as consumers bring forward major purchases to avoid higher taxation next year.

However, economist Alexander Koch at Unicredit bank predicts: "The recent strong momentum of economic growth has led to a noticeable improvement of the fundamental situation of the German economy in the course of the year. Companies should also be able to expand business in 2007."

Data sourced from BBC Online; additional content by WARC staff