BUSINESS German business confidence reaches record high


German business confidence reaches record high


05:41, January 26, 2018


Germany continues to enjoy a strong economic momentum despite a slow process of government formation, according to two studies published on Thursday by the Ifo Institute for Economic Research (Ifo) and GfK market research institute.

The closely-watched Ifo Business Climate Index rose surprisingly by 0.4 points to a new record high of 117.6 points. Most economists had predicted a slight deterioration prior to its release.

"The German economy entered the new year with verve," a statement by Ifo president Clemens Fuest read.

The Munich-based institute pointed out that the 7,000 German business leaders polled for the study were as upbeat as ever about their commercial situation. Export-oriented industrial companies in particular expressed high levels of optimism.

The International Monetary Fund (IMF) has only recently upgraded its forecast for global growth in 2018 to 3.9 percent, a development that would benefit German manufacturers.

Ifo expects Gross Domestic Product (GDP) in Germany to reach 2.6 percent in 2018 after 2.2 percent in 2017. Private consumption would make an important contribution to further anticipated expansion in light of record employment levels and rising wages.

Nevertheless, Ifo drew attention to Euro-appreciation, higher oil prices and domestic issues such as a scarcity of qualified workers as posing potential risks to economic development.

At the same time, the Nuremberg-based GfK institute released another study on Thursday highlighting a rise in consumer sentiment. The GfK consumption barometer for February rose by 0.2 points to 11.0 points, the highest reading since October 2001.

"This is an excellent foundation for a successful consumption year in 2018," GfK expert Rolf Buerkl told media.

Buerkl noted that Germans viewed both the prospects for growth as well as for their private income more positively, making them more inclined to commit to greater spending.

The GfK identified protectionist U.S. trade policy and sluggish Brexit negotiations two developments which could still undermine German consumer sentiment in 2018.

Commenting on the two widely-publicized studies on Thursday, Alexander Krueger, chief economist at the Lampe private bank said that it was "interesting" that the deadlock in the government formation process had "barely hampered" the positive findings.

However, Andreas Scheuerle, expert at DekaBank, offered a more pessimistic prognosis that future improvements would be difficult to achieve.

"The economic boom is eating its own children: bottlenecks in supply, personnel and capacity are increasingly complicating production," Scheuerle said. 

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