German business confidence jumped to a 10-month high in April in a sign that growth in Europe’s largest economy is set to pick up on the back of record stimulus and a favorable exchange rate.
The Ifo institutes’s business climate index rose for a sixth month to 108.6 from 107.9 in March. The median estimate was for an increase to 108.4, according to a Bloomberg survey of 36 economists.
“I’m quite optimistic about the German economy -- the lights are on green, the euro is low, energy prices have dropped,” said Aline Schuiling, senior economist at ABN Amro Bank NV in Amsterdam. “The biggest source of uncertainty for Europe at the moment is the situation in Greece -- that could create some disruption if it doesn’t evolve as we all hope.”
Germany is important to the 19-nation euro area’s economic health because it accounts for nearly 29 percent of gross domestic product. While the Bundesbank has expressed confidence that economic growth this year will be “quite robust,” declines in investor sentiment and a gauge of manufacturing and services activity serve as a reminder that the country’s recovery isn’t immune to risks.
Ifo’s gauge of current conditions rose to 113.9 in April from 112.1 in March, while a measure of expectations slipped to 103.5 from 103.9.
The euro was little changed after the report and traded at $1.0885 at 10:06 a.m. Frankfurt time, up 0.6 percent today. The benchmark DAX Index rose 0.3 percent.
Euro-area finance ministers are meeting in Riga on Friday in their latest attempt to persuade Greece’s government to commit to economic reforms so that aid payments can be released before the country runs out of money.
The European Central Bank, which is supporting the 19-nation economy with record-low interest rates and a 1.1 trillion-euro ($1.2 trillion) asset-purchase plan, is urging all euro-area governments to make their economies more competitive and increase potential growth.
German Economy Minister Sigmar Gabriel said on Wednesday that the government will use improving economic prospects to boost investment to further bolster the recovery.
“Investment in education and research, in infrastructure, as well as a better environment for private investment, are important starting points,” he said after the government raised its economic outlook. It now predicts growth of 1.8 percent this year and in 2016.
German business software-maker SAP SE reported first-quarter sales that topped analysts’ estimates as a weaker euro boosted revenue from markets including the U.S. The single currency has declined about 11 percent against the dollar this year, according to data compiled by Bloomberg.
In April, German manufacturing and services activity unexpectedly slowed for the first time in five months. A Purchasing Managers Index for both industries fell to 54.2 from 55.4 in March, Markit Economics said on Thursday. ZEW’s indicator of investor expectations slipped for the first time since October.
Data from other euro-area countries also highlight the fragile state of the region’s recovery. In Spain, unemployment rose for a second consecutive quarter at the beginning of the year, French industrial production stalled in February, and retail sales in Italy fell the most since June.
Nevertheless, ECB Executive Board member Peter Praet said on Thursday that “the euro-area economy seems now to be turning the corner” and governments must use the opportunity to cement long-term growth by making reforms.
The region is “seeing the beginnings of a cyclical recovery,” he said. “But it is not yet a structural one.”