A fresh rise in the closely watched German business confidence index of the Ifo economic research institute suggests Europe’s biggest economy may be nearing the bottom of its slump.

The index rose higher than anticipated to 86.3, well up from October’s nadir of 84.7 [WAMN: 22-Nov-01] and November’s 84.9 (due to a reorganisation of the index, no data were released for December).

Moreover, the jump in the index was a direct reflection of a rise in the business expectations component from 90.9 in November to 94.8, since respondents’ assessment of the current situation actually fell, dropping one point to 78.0. An upturn in economic conditions is often preceded by a sustained increase in confidence in the future.

“It looks like we are approaching the trough of the downswing,” commented Ifo economist Gernot Nerb, who added that he expects the German economy to contract for the third consecutive quarter in Q1 before recovering around April.

News sources: Wall Street Journal; Ifo