German corporate sentiment improved in April to its best level in five months, adding to hopes that the downturn in Europe's largest economy may be easing despite gloomy forecasts released this week. The Ifo business climate index, based on a poll of around 7,000 firms, rose to 83.7 from a March reading of 82.2, the lowest since German reunification in 1990 although revised up slightly, the Munich-based economic institute said on Friday.
A Reuters poll of economists had pointed to an April reading of 82.3. The euro extended gains against the dollar after the data, which came a day after leading think tanks forecast the economy would contract by 6 percent this year. It has not yet shrunk by more than 1 percent in any year since World War Two.
"Is this the end of the crisis? No, it is not, but the free fall of the economy seems to have come to an end, leading to a fragile stabilisation in the second half of the year," said Carsten Brzeski, an economist at ING Financial Markets. Jennifer McKeown, an analyst at Capital Economics in London, said she also expected a contraction of 6 percent this year: "But the improvement in business sentiment is an encouraging sign that things should get better as the year goes on."
The Ifo survey was marked by a rise in an index on current conditions to 83.6 from 82.7 in March - its first increase in six months. An expectations component rose to 83.9 from 81.6 in March, the fourth rise in a row. "The strongest declines (in the economy) are probably behind us, if no further risks appear in the coming months," Ifo economist Klaus Abberger told Reuters, adding: "We still cannot speak of a turnaround yet."
Highlighting the tough environment, German car parts group Robert Bosch said on Thursday it would slash jobs this year in Germany and abroad as its sales slump as much as 15 percent. "For 2009, Bosch expects one of the most difficult years in the company's history, with substantial risks to sales and earnings," Chief Executive Franz Fehrenbach said. German policymakers stress that the economy remains in a tough spot.
"We are now in the deepest recession in the post-war period," ECB Governing Council member Bundesbank President Axel Weber told German radio earlier on Friday. "We have a chance that this recession weakens slightly this year and that we come out of it next year," Weber added. On Wednesday, Finance Minister Peer Steinbrueck said it was "not unlikely" that the economy could shrink by 5 percent or more this year, dragged down by what he believed had been a first quarter contraction of around 3.3 percent.
There are some rays of light, however. The head of engineering sector association VDMA told Reuters last week that Germany's plant and equipment industry, the country's largest industrial employer, is seeing early signs of stabilisation. Meanwhile, the ZEW economic institute's survey of German analyst and investor sentiment rose in April to its highest level in almost two years.
Colin Ellis, European economist at Daiwa Securities, said the business climate remained challenging and that recent falls in production had yet to feed through into the labour market in the form of higher unemployment. "As such, spending and activity could take another leg down from the middle of 2009," Ellis said. "The economy is definitely not out of the woods yet.
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