The German Ifo business survey showed sentiment rose in November among German businesses to the highest level since June 2014. The Ifo business climate index increased to 109.0 in November from 108.2 in October and against estimates it would stay unchanged.
The current assessment index, which fell sharply last month as weakening overseas demand had dampened the mood, rose to 113.4 in November from an upwardly revised 112.7 the prior month. This was well above expectations that it would drop to 112.4. Future expectations also improved as the Ifo Expectations index climbed to 104.7 from an upwardly revised 103.9 in October. Estimates were for the index to rise marginally to 104.0.
The German economy has faced several headwinds this year, from the Greek debt crisis, a slowdown in emerging market economies to the Volkswagen scandal. But German companies have so far appeared to have weathered the storm, despite a knock on exports.
According to the survey, the manufacturing, wholesale and construction sectors all reported improved sentiment, with the outlook for the months ahead also improving. The retail sector did not perform as well though and saw a fall in the business climate index. Retailers were also more pessimistic for the months ahead.
PMI data released yesterday supported the view that the mood across German companies is improving and may signal stronger growth in the fourth quarter, following a weak third quarter. Data released earlier today confirmed that German GDP growth slowed to 0.3% q/q in the third quarter from 0.4% in the prior three months.
Growth in the quarter was driven by household consumption, which rose by 0.6% q/q, but government expenditure was also strong, increasing by 1.3% q/q. Higher government expenditure was mostly attributed to the influx of refugees as the state has been increasing spending to provide housing and support.
However, there was a marked slowdown in exports growth as weaker demand from China and other emerging economies have hurt sales of German manufactured goods. Exports grew by just 0.2% q/q in the third quarter after jumping by 1.8% in the previous quarter. The poor performance of exports was evident in recent factory orders and industrial production data, which had fallen sharply in August and September.
A rebound in fourth quarter growth looks likely even if exports are slow to recover as falling unemployment and ultra-low interest rates should continue to lift domestic demand. However, this should not deter the European Central Bank from loosening monetary policy in December as growth in the Eurozone’s largest economy has been running below trend since 2012.
The euro rose against the dollar and the pound after the data, climbing to an intra-day high of 1.0699 dollars and 0.7052 pounds. It has since pulled back against the dollar to 1.0651 in mid-European session. Against the yen, the single currency did not respond as much, and was steady around 130.50 yen.
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