The mood among German firms picked up for the fifth straight month in August to its highest level since September 2008, raising recovery hopes in Europe's top economy, an index showed Wednesday. The Ifo's closely watched business sentiment indicator rose to 90.5 from 87.3 in July, the institute said, surprising analysts polled by Dow Jones Newswires who had expected a smaller rise to 88.8 points.
"The German economy is slowly recovering from its downturn," said Hans-Werner Sinn, Ifo president. The surprisingly strong rise represents the latest in a string of positive indicators from Germany, which officially exited its worst recession in six decades with growth of 0.3 percent in the three months to June.
Another survey of financial market investors, the ZEW, pointed last week to better times ahead for Germany, while so-called "hard" data, such as industrial orders, have also been better than expected in recent months. A further poll, published Wednesday in Stern magazine, showed that 39 percent of people thought the worst of the economic crisis was over, compared to only 12 percent who held that opinion one year ago.
With just over four weeks to go until German elections, the increasingly positive mood in the economy is likely to boost the campaign of Chancellor Angela Merkel, whose Christian Democrats are riding high in the polls. Nevertheless, analysts warned against popping champagne corks prematurely.
"While the near term looks bright, there are still at least two impediments to a real recovery - the worsening labour market and a possible credit crunch," said Carsten Brzeski, senior economist at ING. Although the lid has been kept on job losses by a government scheme offering incentives to firms to put employees on part-time work, unemployment has started to rise and experts have warned that worse is to come.
Finance Minister Peer Steinbrueck said there were "clear indications" that credit was tight for big- and medium-sized firms, adding that he was considering low-interest state loans to cash-strapped companies. "If the efforts of banks are not sufficient to supply the economy with enough fresh cash, the state will have to make use of other measures," Steinbrueck told the Handelsblatt business daily in an interview.
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