German Business Confidence Rises to 17-Month High

Overview
German business climate climbed to 94.7 in December from 93.9 the month prior to mark the highest reading in more than a year, with economists’ expectations of 94.5,  and the data encourages an improved outlook for region as policy makers raise their projections for future growth. At the same time, the IFO’s current assessment and  its gauge for future expectations also accerlated from the previous month, climbing to 90.5 from 89.1, and to 99.1 from 98.9 respectively.



The Breakdown
Despite the fall in factory demands and output, the IFO expects foreign orders to improve over the coming months, with chief economists Gernot Nerb stating that the upswing in economic activity is gaining momentum.. The breakdown of the report which illustrated current conditions climbing to 90.5 is a good indicator for future production, which typically lags behind manufacturing orders, thus adding a positive outloook for business sentiment. However, construction remains firmly negative, while wholesale trade remains subdued, and business may lower their outlook for future growth over the following year as the government stimulus begins to taper off.



Forecast
Going forward, the Bundesbank said the slump in “private consumption will likely have a damping impact” on GDP after expanding 0.7% in the third quarter, when economic growth was accelerated by the government’s stimulus programs, and expects the economy to grow 1.6% in 2010 after contracting 4.9% this year. At the same time, the central bank argued that the decline in demands and industrial output is merely a “repercussion effect” of the global recession, and went onto say that the Germany labor market remains “surprisingly robust” as policy makers anticipate employment demands to weaken at a “moderate speed” going forward. Despite the improved outlook help by policy makers, hold a bullish bias for the euro seems to be unfavorable following the nationalization of Hypo Group Alpe Adri, the sixth largest bank in Austria, along with Greece credit rating having been downgraded, which is likely to weigh on the single-currency going forward.