German business morale edges up for third straight month

Europe’s growth locomotive tentatively recovering thanks mainly to domestic demand


German business morale edged up for a third straight month in July in a sign Europe’s largest economy is picking up steam and should post modest growth in this election year, although the euro zone’s travails still weigh on the mood.

A bastion of strength in the early years of the currency bloc’s crisis, the German economy narrowly avoided recession at the start of 2013 as a worsening global outlook diminished appetite for its products and willingness to invest.

Yet recent data suggests Europe’s growth locomotive tentatively recovering thanks mainly to domestic demand - good news for Germany’s trade partners within the euro zone, where private industry bounced back to growth this month.

The Ifo think tank said today its business climate index, based on a monthly survey of some 7,000 firms, rose to 106.2 in July from 105.9 in June.

“July’s small rise in the German Ifo adds to evidence that the economy is recovering, but the recovery is likely to be modest,” said Jennifer McKeown at Capital Economics. “Recent weak hard data on trade and industrial production were a warning not to get too carried away about the speed of the recovery.”

The recent picture has been mixed although it suggests the economy is gaining traction. Industry orders and output tumbled in May, yet a purchasing managers’ index (PMI) showed the manufacturing sector returning to growth in July.

Non-industrial data has picked up more, with consumer morale improving, retail sales rising and joblessness falling in stark contrast to the soaring unemployment in much of Europe. Munich-based Ifo said companies were more optimistic in July about their current business, with the conditions sub-index rising to 110.1 from 109.4 in June.

Reflecting the improved mood, Germany’s Mercedes-Benz Cars said this week it expected good sales in July and the second half of the year. Ifo economist Klaus Wohlrabe said the institute now expected the economy to have expanded 0.9 per cent in the second quarter, picking up after just 0.1 per cent in the first three months of 2013, putting it on-track for full-year growth of 0.6 per cent.