German Business Optimism Climbs to Record as Economy Booms

German companies are more confident than ever as they tap into the global economic upswing.

A measure of the nation’s business confidence set a new record high in November. The Ifo institute’s index climbed to 117.5 from a revised 116.8, beating economists’ estimates for the gauge to remain unchanged.

“The recent uptick is the index is mostly due to the manufacturing sector, so the export industry really,” Ifo Institute President Clemens Fuest said in an interview on Bloomberg Radio. “We’ve had a strong domestic economy for some time and what’s being added now is a stronger global economy.”

Europe’s largest economy has soared this year as global trade picks up and the euro area’s revival becomes more broad-based. The Bundesbank predicts that German momentum will carry into the final quarter, and economists foresee the fastest expansion since 2011. There is also no danger of overheating just yet as inflation remains low, according to Fuest.

Ifo’s gauge of expectations rose to 111.0 from a revised 109.2, though a measure of current economic conditions dropped to 124.4 from 124.8.

One headwind is domestic political uncertainty after Chancellor Angela Merkel saw her efforts to form a coalition government collapse. Ifo said 90 percent of the responses to its survey were submitted before that turn of events, but so far the political uncertainty doesn’t affect the economy, Fuest said. Most companies think a new government is a matter of weeks or months, he added.

“The current situation in Germany is an excellent illustration of a phenomenon which has characterized the entire eurozone throughout the year: buoyant confidence and strong economic growth goes hand in hand with political uncertainty and instability,” said Carsten Brzeski, chief economist at ING-Diba AG in Frankfurt. “This dichotomy can easily continue in 2018.”

In the wider euro area, economic growth is powering ahead, with the European Central Bank claiming credit for the most synchronized upswing since the single currency was founded almost two decades ago. A purchasing managers index measuring private-sector activity accelerated in November after new orders surged the most in more than 6-1/2 years, and companies added jobs at one of the fastest rates in at least two decades.

While the ECB says its extraordinary monetary stimulus is driving growth, policy makers are considering plans for gradually withdrawing some of their support.
Source: Bloomberg