German business morale surges

German business morale surged to its strongest in a year-and-a-half in November, suggesting Europe’s largest economy is gaining steam into the end of the year after growing by a modest 0.3% in the third quarter.

The Munich-based Ifo think-tank said yesterday its business climate index, based on a monthly survey of 7,000 firms, rose to 109.3 points, beating the consensus forecast in a Reuters poll for a rise to 107.7 and surpassing the highest estimate for 108.5.

The increase in the index, which had fallen in October, sent the euro higher and pushed German Bund futures lower.

A robust rise in domestic demand overshadowed weak exports to drive a 0.3% expansion in the German economy in the third quarter, giving the government ammunition in its showdown with Brussels over eurozone trade imbalances.

The European Commission is investigating Germany’s persistently high current account surplus amid criticism that it relies too heavily on exports, yet yesterday’s breakdown showed that net trade deducted 0.4 percentage points from third-quarter growth.

“With today’s data, the latest criticism of the German growth model looks a bit like crying over spilled milk,” said Carsten Brzeski, senior economist at ING. “The often-called-for rebalancing of the economy is already taking place.”

Domestic demand was the main growth driver, rising 0.7% in the quarter. Investment, which began the year sluggishly, rose by a robust 3%, propelled by a strong increase in construction.

Private consumption added 0.1 percentage points to GDP. A robust labour market, moderate inflation and strong wage hikes have boosted household spending in Germany.

The German economy put in a stellar performance during the early years of the eurozone crisis but growth slowed last year. After stagnating in the first quarter of this year, it posted bumper growth of 0.7% between April and June but that was mostly due to weather-related catch-up effects.

Economists expect solid growth in the fourth quarter. The Bundesbank said, this week, Germany was growing solidly and its upturn would likely be consolidated in the coming months thanks to domestic demand and an improved global environment.

— Reuters


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