Strong business morale shows Germany will avoid recession

Reuters Business News
Posted: Jan 25, 2012 6:13 AM
Strong business morale shows Germany will avoid recession

By Annika Breidthardt

BERLIN (Reuters) - German business sentiment rose for the third month in a row in January, beating expectations and offering fresh evidence that Europe's largest economy is shrugging off a sovereign debt crisis that has hammered growth in other euro zone countries.

The Munich-based Ifo think tank said on Wednesday its business climate index, based on a monthly survey of some 7,000 companies, rose to 108.3 in January from a revised 107.3 in December, its highest level since August and the biggest monthly increase in 11 months.

The reading was at the top end of expectations in a Reuters poll of 39 economists that produced a median forecast of 107.5. It sent the euro to a session high versus the dollar.

"Did anyone say recession? Today's Ifo index shows that the German economy only made a short stopover at the end of last year and is now heading towards expansion again," said Carsten Brzeski, an economist at ING in Brussels.

"The widely-spread fear that the euro zone's biggest economy could now also be caught by the crisis virus has been soothed."

A sub-index on expectations posted the biggest monthly climb since July 2010, a sign businesses are confident that Europe's powerhouse will return to healthy growth from the second quarter of the year. It rose to 100.9 from a revised 98.6.

Germany has been resilient in the face of troubles elsewhere in the euro zone, as fiscal prudence, steady demand for its high-quality products, and high competitiveness have helped it weather a tough global environment.

But its economy slowed at the end of last year and some economists see a risk of two consecutive quarters of contraction -- the technical definition of a recession -- in the fourth quarter of 2011 and first quarter of 2012.

Germany's government predicts the economy will grow 0.1 percent in the first quarter.

"There are no signs of a recession," said Ifo economist Klaus Abberger, pointing to the euro zone debt crisis as the main risk to the German outlook.

Germany was the only country in the euro zone to retain a top-grade AAA credit rating with a stable outlook from Standard & Poor's, after the rating agency's mass downgrade of states using the single currency earlier this month.

Ifo's sub-index on current conditions fell to 116.3 from 116.7 in December.

(Reporting by Annika Breidthardt, additional reporting by Stephen Brown, Madeline Chambers, Brian Rohan and Gareth Jones; Editing by Noah Barkin)