German economy 'spiralling ever higher'

GERMAN BUSINESS confidence has soared to its highest level in at least 20 years, according to a survey that showed Europe’s largest economy countering the gloom spreading over other parts of the crisis-hit euro zone.

The Munich-based IFO institute said its business confidence indicator had jumped this month to the highest level since the survey started after German unification in 1990.

The results suggested the country’s robust recovery, which had shown signs of losing momentum, might even have re-accelerated. “The German economy is spiralling ever higher,” said Hans-Werner Sinn, IFO’s president.

Strong German growth should help boost confidence across the euro zone – even if the direct impact is small for countries such as Ireland, which trades more with Britain and the US. The rise in the IFO reading, from 107.7 in October to 109.3 in November, was driven by greater optimism about the next six months as well as a better assessment of current conditions.

Gilles Moec, European economist at Deutsche Bank, said the Irish crisis might even have helped Germany by driving the euro sharply lower, boosting export prospects. After peaking in the second quarter of this year, German growth was still abating, he said, but “it’s a super soft landing rather than anything scarier”.

Encouragingly for euro zone policymakers, Germany’s recovery is becoming broader-based. The IFO said retailers had become significantly more optimistic about prospects for next year, almost certainly because sharp falls in unemployment are likely to boost high street spending.

With France also seeing robust economic growth, European Central Bank policymakers could see a stronger case for pressing ahead with their “exit strategy” to unwind emergency measures taken after the collapse of Lehman Brothers in September 2008.

Expectations have risen that the ECB will next week announce the end of the unlimited provision of three-month liquidity – leaving it providing only monthly and weekly liquidity on an unlimited basis. – (Copyright The Financial Times Limited 2010)