German business morale reaches highest level in two and a half years

Mon Feb 24, 2014 6:12am EST
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By Michelle Martin

BERLIN (Reuters) - German business morale rose in February to its highest level since July 2011, suggesting Europe's largest economy will grow faster in the first quarter after expanding only modestly last year.

The Munich-based Ifo think tank's business climate index, based on a monthly survey of some 7,000 companies, increased to 111.3, beating the consensus forecast in a Reuters poll that it would hold steady at 110.6. Economists said the survey pointed to an economic upturn.

"February's German Ifo survey suggests that the economic recovery has continued to pick up some momentum in the early months of 2014," said Jonathan Loynes, the chief European economist at Capital Economics.

The upbeat reading sent the euro to a day's high and pushed German Bund futures down to a session low.

German sentiment indicators have generally been upbeat in recent months, though a ZEW survey last week showed morale among analysts and investors dropping.

Hard data have been more subdued, with exports, industrial output and orders all falling in December. That has prompted some economists to warn that the economy is not faring as well as the forward-looking "soft" surveys suggest.

Loynes said the Ifo survey had been "consistently over-optimistic" compared with hard data. Combined with a drop in expectations, he said, that supported the case for "steady but unspectacular" growth in Germany.


Two girls enter a "Tea House" in downtown Hanover, June 26, 2012. REUTERS/Fabian Bimmer