German business confidence hit a five-year high this month as easing oil prices and a weaker euro led companies to feel more confident about the economic outlook, after last month's general election led companies to feel more confident about the economic outlook, a key survey showed today.
The widely watched business climate index, calculated each month by the Ifo economic research institute in Munich, rose to 98.7 points in October from 96 in September, Ifo said in a statement.
It was the highest reading since October 2000. And it was way above analysts' expectations - consensus forecasts had put the October reading only slightly higher at 96.1 points.
For its monthly survey, Ifo polls around 7,000 companies about their assessment of current business and their expectations for the next six months.
A breakdown of the data showed that the current sentiment sub-index rose to 98.9 points in October from 96.5 points in September. That was the highest level since February 2001.
And the expectations sub-index also surged to 98.5 points from to 95.5 points. The last time the expectations sub-index was so high was in March 2004.
Ifo chief economist Gernot Nerb said that the softer euro and easing oil prices helped fuel companies' increasing optimism. 'The fact that the expectations sub-index rose faster this month than the current assessment index indicates that the surge in confidence this month is unlikely to be a flash in the pan,' he said.
However he warned that recovery is still at an early stage and that data from a few more months is needed to see if the recovery is going to become more self sustaining.
He said that Ifo was sticking to its current forecast for German growth of 0.8% this year and continued moderate growth next year.
Nerb said that the think tank would advise the European Central Bank not to be too hasty in raising its key interest rates in face of the rosier growth outlook.
The ECB has held its key interest rates at 2% since June 2003 but has recently stepped out its anti-inflation rhetoric, sparking speculation it could be preparing to tighten monetary conditions in the 12 country euro zone soon to keep a lid on inflation as economic recovery gathers momentum.
In September, neither the governing coalition of Social Democrat SPD, the environmentalist Green parties nor the conservative opposition CDU/CSU parties won a ruling majority, forcing both sides into an uneasy grand coalition of left and right.
The parties are currently hammering out the details of their coalition with the aim of steering the eurozone's biggest economy back to growth and employment.
