German Ifo Sentiment Rises as Bundesbank Sees Growth Pickup

  • Ifo business climate index rises to 111 from 109.9; est. 109.6
  • Gauges for expectations, current conditions both improved

The German economy expanded at the fastest pace in five years in 2016 and is forecast to continue to drive growth in the 19-nation euro region.

Photographer: Krisztian Bocsi/Bloomberg

German business confidence unexpectedly improved, underpinning the Bundesbank’s prediction that economic growth strengthened at the start of the year.

The Munich-based Ifo institute’s business climate index rose to 111 in February from a revised 109.9 in January. That compares with a median estimate of 109.6 in a Bloomberg survey of economists.

The German economy expanded at the fastest pace in five years in 2016 and is forecast to continue to drive growth in the 19-nation euro region even amid concerns that political events -- ranging from U.S. economic policies to Brexit and France’s presidential election -- could stymie momentum. Both Thyssenkrupp AG and Siemens AG have issued words of caution about global risks.

At the European Central Bank, Executive Board member Peter Praet listed “signals we get from the U.S.” as a worry. While French presidential candidate Marine Le Pen has promised a referendum on her country’s relations with the European Union if she’s elected, Britain is expected to trigger Article 50 to leave the bloc by the end of next month.

“We’re in an environment of heightened political uncertainty” but the “slight euphoria we’ve seen in the last few months will continue,” said Christopher Matthies, an economist at the Sparkasse Suedholstein.  “The economy is strong enough that the political risk isn’t being felt.”

Given “very dynamic” order intake, strong economic impulses can be expected in Germany, which in turn should be reflected in exports, the Bundesbank said in its monthly report. It concluded growth should strengthen in the first quarter of this year.

Yet, the country faces political uncertainty of its own, with a national vote scheduled for Sept. 24 that has Chancellor Angela Merkel facing off against a Social Democratic party that has gained in recent polls.

A measure of current economic conditions rose to 118.4 from 116.9, according to Ifo. Its gauge of expectations increased to 104 from 103.2.

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