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German business sentiment rose to its highest level in a year in September but fell short of expectations for a bigger rise, raising doubts about the momentum behind the recovery of Europe's largest economy. The Munich-based Ifo think tank said on Thursday its business climate index, based on a monthly survey of some 7,000 firms, rose to 91.3 from 90.5 in August. A Reuters poll had pointed to a rise to 92.0.
The euro edged down against the dollar and Bunds briefly hit their highs of the day after the weaker-than-expected Ifo data, though the fact that the index rose could offer support for Chancellor Angela Merkel before Sunday's federal election. "Developments are still positive," said Thilo Heidrich, economist at Postbank. "The recession is technically over but the recovery will be drawn out." Joerg Lueschow at WestLB said he did not expect Germany to slip back into recession, but that the recovery would probably lose momentum after a strong third quarter.
The latest Ifo index showed the outlook among manufacturers, wholesalers and retailers all improved, though the construction industry was more downbeat than it was in August. The service sector also looked forward to better times ahead. Germany emerged from its deepest post-war recession in the second quarter.
The Finance Ministry said on Monday the economy should continue its recovery in the third quarter but it was unclear if the turnaround is on a solid footing. Ifo economist Klaus Abberger told Reuters the nascent recovery may be stunted in the months ahead as unemployment rises and global stimulus packages expire.
"I see the danger that it will not be sustainable," he said. Ifo President Hans-Werner Sinn said most firms surveyed still assess the business situation as poor. "Only with regard to the six-month business outlook is there now nearly a balance between pessimists and optimists," he added. "In light of the catastrophic developments over the past twelve months, this is good news."
German exports rose for a third straight month in July, and manufacturing orders increased more than expected. However, economists expect unemployment to rise above 4 million next year, putting a break on private consumption. German automotive supplier Robert Bosch expects to cut 10,000 jobs this year and keep 100,000 more staff on short working hours amid an auto industry slump that could last for years, Chief Executive Franz Fehrenbach said earlier this month.
Bosch was unlikely to see a quick rebound in its capacity utilisation rates, Fehrenbach added. "Overall it could take until 2012 until we reach the pre-recession level of 2007 again," he said. Industrial gas maker Linde was more upbeat, saying on Thursday it saw a recovery picking up in the second half.

Copyright Reuters, 2009

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