German business confidence in unexpected rebound, Q1 growth of 0.1% confirmed

Friday 24 May 2013 19.07
German economy grew by 0.1% in first three months of the year, data confirms
German economy grew by 0.1% in first three months of the year, data confirms

German business confidence rebounded this month in an unexpectedly strong showing that sends a hopeful signal for more robust growth in Europe's biggest economy.

The closely watched Ifo think tank's confidence index rose to 105.7 points for May from 104.4 last month.

The improvement followed two consecutive declines and beat economists' expectations of a very slight increase to 104.5.

Meanwhile, the German economy returned to modest growth of just 0.1% in the first quarter, just enough to avoid a recession after shrinking in the last three months of 2012.

The seasonally adjusted data from the Federal Statistics Office confirmed an earlier flash estimate.

Germany's economic performance was weighed down by an exceptionally long winter and the country's central bank said this week that it expects an improvement in the current quarter. Recent industrial orders data also have been promising.

Ifo said this month's improvement in its survey was fueled by companies' brighter view of their current situation, while their outlook for the next six months remained unchanged.

Export expectations have weakened somewhat among companies in the key manufacturing sector, but "continued stimulus from abroad is expected," Ifo said in a statement.

The Ifo survey is based on monthly responses from some 7,000 companies.

And a separate survey today showed a significant rise in German consumer confidence as people's expectations for the economy and for their own income improved.

The GfK institute said its forward-looking consumer climate index rose to 6.5 points for June from 6.2 in May, the highest since September 2007, though it cautioned consumer confidence would be vulnerable if Europe's debt crisis escalates again.

With German unemployment low and employees in some sectors recently winning significant pay rises, domestic demand is helping keep the economy on track even as other countries in Europe struggle.

The Federal Statistical Office pointed to household spending, which rose 0.8% in the first quarter, as a key driver in the country's return to growth. Detailing the first-quarter performance on Friday, it said exports barely contributed to growth, while investment decreased.

Economists said that "the fog is clearing" over the direction of the German economy, and that a combination of private consumption and a catch-up in industrial activity, particularly in construction, could deliver decent growth in the second quarter.

But they cautioned that the big unknown in the equation remains the export sector, pointing to softer growth in China and economic stagnation in neighbouring France.