German minister says country experiencing 'textbook' recovery

THE RISE in German business confidence continues, with the country’s leading economic indicator rising for the fifth consecutive month to reach its highest level since 2007.

Munich’s Ifo economic institute said its closely-watched index rose to 107.6 points for October from 106.8 the previous month.

“The engine of economic activity is running smoothly,” said Ifo president Hans-Werner Sinn said in a statement. “Firms have once again given more positive assessments of their current business situation and their business expectations have improved.”

The survey of 7,000 managers found they gauged their current situation as stable, reflected in a rise in the current sub-index to 110.2 from 109.8. The same managers forecast a rise in their fortunes in the next six months, with the corresponding index rising to 105.1 from 103.9.

Prof Sinn highlighted improved business confidence in the manufacturing and construction sectors which “remains very good”.

Exporters, he said, had given “more favourable appraisals of their chances in foreign markets”.

Strong export growth prompted the German government to double its growth forecast for 2010 on Thursday to 3.4 per cent, followed by 1.8 per cent growth in 2011.

Presenting the new growth forecast, economics minister Rainer Brüderle said Germany was experiencing a “textbook” recovery. After years of export-driven growth, domestic demand would count for three-quarters of growth in 2011.

Despite domestic demand, the key factor in German growth is a pick-up in global trade as customers place orders for German cars and machines. A drop in the unemployment rate to 7 per cent, an 18-year low, has also helped.

But as Germany powers ahead, analysts have warned that it heightens the risk of leaving its neighbours in the economic lurch.

“This means ongoing growth divergence in the EMU (European Monetary Union) and an increasing stretch for the one-size-fits-all monetary policy” of the European Central Bank, said UBS economist Martin Lück.

Germany’s benchmark DAX stock market index has gained more than 10 per cent this year, compared to a 3 per cent decline in the Euro Stoxx index.