German business sentiment rose more than expected in January to its highest level in 1-1/2 years, suggesting the recovery will gather pace once Europe's largest economy emerges from a harsh winter.
The Munich-based Ifo think tank said today its business climate index, based on a monthly survey of some 7,000 firms, rose to 95.8 from a revised 94.6 in December. A Reuters poll of 50 economists had pointed to a reading of 95.1.
The rise was the tenth consecutive monthly increase.
"This is a positive surprise," said Postbank economist Heinrich Bayer. "There was a strong rise in expectations. It really is an ideal result, to have both index components rising further and expectations being significantly above expectations. It points to significant growth potential for the economy," he said.
Euro zone government bond futures trimmed gains after the release of the data.
The Ifo data eased some concerns that Germany's recovery could falter after growth slowed to close to zero in the final quarter of 2009. The economy pulled out of its deepest post-war recession in the second quarter of last year.
An Ifo current conditions index rose to 91.2 from a revised 90.4 in December. An expectations index rose to 100.6 from a revised 98.9, surpassing expectations for a reading of 99.2.
"It is encouraging that expectations have risen again," said UniCredit economist Andreas Rees. "This means the recovery will probably continue in the first half of the year even if the harsh winter temporarily hits growth."
Ifo economist Klaus Abberger told Reuters many construction companies were complaining about the impact of the weather but that building industry expectations had risen considerably due to fiscal stimulus.
Some other recent economic data have also been positive.
A survey released last week showed a rise in output helped German manufacturing activity expand in January at its fastest rate since May 2008, supporting growth in the private sector of Europe's largest economy.
But economy minister Rainer Bruederle said earlier this month growth in the first quarter of 2010 could be near zero.
"In the very short run, the exceptionally strong winter could weigh on the industrial recovery," said Carsten Brzeski, economist at ING Financial Markets. "However, any setbacks should be temporary.
Reuters