Photographer: Alex Kraus/Bloomberg

Germany Inc. Is Confident as Ever Reaping Fruits of Global Boom

Updated on
  • Ifo climate index jumps to 116.7 vs. estimated drop to 115.1
  • Gauges for current conditions and expectations both improved

German companies are more optimistic than ever as they reap the benefits of global economic strength fueling demand from the world’s third-largest exporter.

A measure of the nation’s business climate rose to the highest level on record in October, exceeding a previous all-time high set just three months ago. The Munich-based Ifo Institute, which surveys some 7,000 companies, has compiled the index for the unified German economy since 1991.

The report -- Ifo’s first since Angela Merkel was reelected German chancellor last month -- was published on the eve of the European Central Bank’s most critical decision in years, as officials decide how to wean the wider euro region off quantitative easing. It suggests Germany’s strong growth performance this year will likely spill into the final quarter, supporting economists’ forecasts of the fastest annual expansion since 2011.

“It’s the combination of a very strong global economy from which German exporters benefit, and the fact that the euro hasn’t continued to rise,” said Andreas Rees, an economist at UniCredit Bank AG in Frankfurt. “In addition, the domestic economy is also doing very well.”

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The euro was little changed after the report and traded at $1.1772 at 1:30 p.m. Frankfurt time. The single currency gained more than 14 percent between January and mid-September, before stabilizing in the past few weeks.

Economists currently project German growth of 2.1 percent and the Bundesbank sees vigorous demand from abroad and steady consumer spending at home driving the nation’s solid upswing onward.

The robust health of the euro area’s largest economy may color discussions when ECB officials meet on Thursday to devise their monetary-policy strategy for 2018.

Although officials appear to agree that a strengthening recovery means less support is needed, some are concerned that inflation is not yet quite on track toward the institution’s objective and have argued that slow wage growth remains a key hurdle. Inflation for the region stood at 1.5 percent in September, and was slightly higher in Germany at 1.8 percent.

Inflation Pressure

“A lot of the companies in our survey said clearly that they want to raise prices because capacities are being stretched, and in Germany that should push the inflation rate higher and cause unions to react,” Ifo President Clemens Fuest said in an interview.

He added that another fillip to confidence may be relief in the country’s large automobile sector that controversy surrounding its diesel scandal and a debate on combustion engines has faded into the background, possibly supporting demand.

In the latest earnings season currently underway, many German companies are reflecting improvements in fundamentals in their own statements and figures. Deutsche Lufthansa AG said on Wednesday that about a third of the rise in its operating profit was due to the sound economic situation at home and in Europe, and chemical maker BASF SE cited global growth as a reason for raising its outlook.

Ifo said its measures of current economic conditions, and of expectations, also rose. A separate survey of purchasing managers showed on Tuesday that companies are boosting job creation and raising prices in response to surging orders.

— With assistance by Andre Tartar, Kristian Siedenburg, Oliver Sachgau, Richard Weiss, and Erhard Krasny

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