German Business Confidence Increases to Strongest Since 2011

  • Ifo business climate index climbs to 112.3 vs. est. 111.1
  • Gauges for expectations, current conditions both increased

German business sentiment climbed to the strongest since July 2011 in a sign that the economy is sustaining its momentum as revival in global trade trounces fears of rising protectionism.

The Munich-based Ifo institute’s business climate index rose to 112.3 in March from a revised 111.1 in February. That beat the median estimate of 111.1 in a Bloomberg survey of economists and prompted banks including UniCredit and Barclays to signal they may raise their growth forecast for Europe’s largest economy.

Germany expanded at the fastest pace in five years in 2016, a trend that’s set to continue as the Bundesbank says recent momentum might have been understated. Manufacturing and services output is increasing at the fastest pace in almost six years and unemployment is at a record low -- factors that could contribute to stronger growth in the coming months even as political events such as U.S. policies, Brexit, and French elections continue to pose risks.

“There is especially one fundamental rationale behind upbeat sentiment: the renaissance of global trade,” Andreas Rees, an economist at UniCredit in Frankfurt, said in an e-mailed note. “While robust domestic demand in Germany has certainly played a role in recent business surveys, global trade has been the decisive force.”

Growing demand is coming particularly from emerging markets, according to Commerzbank economists, who predict the German economy will grow 0.7 percent this quarter, the strongest pace in a year. ING economist Carsten Brzeski says the confidence reading suggests Germany is in a “golden cycle that simply does not want to stop.”

The Ifo report showed that a measure of current economic conditions improved to 119.3 from 118.4. A gauge of expectations increased to 105.7 from a revised 104.2.

Germany is the biggest economy in the euro area, where the European Central Bank says the recovery is firming but not strong enough to fuel self-sustaining inflation and allow for an end of extraordinary monetary support. The European Commission will publish a gauge for economic confidence in the 19-nation currency bloc on Thursday, and the European Union’s statistics agency will release March inflation data on Friday.

— With assistance by Andre Tartar, and Kristian Siedenburg

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