German business optimism on the rise

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Morale at German businesses climbed in December as their confidence in the outlook rose at its fastest rate in two and a half years, boosting hopes Europe’s largest economy will bounce back quickly after a weak end to 2012.

The Munich-based Ifo think tank said yesterday its business climate index, based on a monthly survey of some 7,000 firms, rose to 102.4 in December.

That was up from 101.4 in November and the highest level in five months, though the sub-reading for current business conditions fell.

“With a worsening current assessment but improving expectations, the Ifo sends a clear message: things will go worse before they get better. It looks as if any contraction of the economy should be short-lived,” said Carsten Brzeski of ING.

Germany has been an engine of growth throughout much of the three-year debt crisis in the eurozone, but persistent weakness in other countries in the region has recently threatened to drag its economy down.

German GDP could well contract in the fourth quarter, many economists believe – a view supported by October’s slump in industrial output and narrowing of the trade surplus to its lowest level in over half a year.

For 2013, the Ifo and the country’s central bank this month cut their growth forecasts for 2013 and the government may do likewise. But the Ifo reading, which followed a December Purchasing Managers’ survey that showed the private sector expand for the first time since April, beat the median forecast in a Reuters poll of 40 economists for a rise to 102.0.