German Business Confidence Jumps on Strong Start Into 2018

Updated on
  • Ifo confidence index rises to 117.6 vs est. drop to 117.0
  • Gauge for current conditions improves, while expectations slip

German business confidence unexpectedly improved in January, suggesting Europe’s largest economy is off to a strong start in a year that could see the European Central Bank phase out its crisis-era stimulus.

The Ifo Institute’s gauge of business sentiment increased to 117.6 from 117.2 in December. The reading matches a record-high reached in November. Economists surveyed by Bloomberg predicted a drop to 117.0. Consumer confidence is set to rise in February to the highest level since 2001, according to a separate report by GfK.

The strong readings underpin the Bundesbank’s view that the German economy will maintain its momentum after expanding last year at the fastest pace since 2011. Growth is set to be supported by domestic spending and booming global trade, while progress by Chancellor Angela Merkel in forming a coalition after four months of political stalemate is alleviating uncertainty.

The International Monetary Fund raised its outlook for Germany this week, and now forecasts growth of 2.3 percent this year. In a Bloomberg TV interview on Thursday, Managing Director Christine Lagarde urged the government to step up spending to reduce its “excessive” current-account surplus.

“At the beginning of the new year, it’s all hunky-dory in the German economy,” said Carsten Brzeski, chief economist at ING-Diba in Frankfurt. “It looks as if an already mature cycle gets longer and longer” but “new structural reforms and new private and public investments are needed to safeguard the currently strong domestic momentum of the German economy.”

Ifo’s gauge for current conditions rose to 127.7 in January from a revised 125.5, Ifo said. A measure of expectations slid to 108.4 from 109.4.

Consumer confidence is forecast to increase to 11.0 in February from 10.8 in January. That would be the highest reading in more than 16 years.

The release comes just hours before the European Central Bank wraps up its first policy meeting of 2018. Economist expect officials to maintain their stance for now, before phasing out bond buying by the end of the year, according to a Bloomberg survey.

— With assistance by Andre Tartar, Kristian Siedenburg, and Carolynn Look

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