Germany's business climate at best since January - report

German business prospects have improved unexpectedly, despite the global impact of high oil prices and US hurricanes, while euro-zone lending for house purchases has become more buoyant, according to data published yesterday.

The Munich-based Ifo Institute reported that its business climate index had risen from 94.6 in August to 96.0 this month, the highest level since January - although survey replies received after Germany's indecisive September 18th election were less upbeat.

"Maybe there is more growth going on than we thought," said Robert Barrie, European economist at CSFB.

Analysts had expected the index to fall amid uncertainty about the global economic outlook.

Businesses had become more positive about the current economic situation, the institute said. Expectations about the next six months remained unchanged.

German companies are reaping the benefit of extensive restructuring and cost-cutting, which have helped to restore international competitiveness and boost exports.

But unemployment is still around postwar highs, and overall growth in the euro zone's largest economy has remained sluggish for the past four years and is expected to reach only about 1 per cent this year.

Separately, European Central Bank money supply and lending figures showing strong growth in August are likely to add to the ECB's worries about inflationary danger ahead.

They are likely to heighten speculation about a possible ECB interest rate rise, although most economists still expect the Frankfurt-based institution to wait until next year before acting.

Euro-zone lending to consumers for house purchases grew at an annual rate of 10.7 per cent in August, up from 10.6 per cent in July, and one of the fastest rates since the introduction of the euro in 1999. That reflected the strength of house prices in many euro-zone countries - but not in Germany.

Meanwhile, euro-zone trade figures for July showed the impact of rising energy import costs. The seasonally adjusted surplus shrank to €1 billion from €3.9 billion in June, and the lowest since December 2000.

Meanwhile, fresh evidence that corporate Germany is reining in rampant labour costs came yesterday as Volkswagen and DaimlerChrysler, the country's two largest carmakers, won concessions from unions and prepared to cut thousands of jobs.

VW said that its new sports utility vehicle would be produced in Germany, rather than Portugal as it had threatened, after unions agreed a deal under which wages would be 20 per cent lower than for existing workers.

The deal allows the company to save €850 a car.

Separately, DaimlerChrysler is understood to be likely to announce today at least 5,000 job cuts at its Mercedes operation in Germany.

The efforts form part of a wider trend towards more flexible labour conditions, including recent job losses at Siemens and wage deals at Porsche and Linde. - (Financial Times Service)