Business and investor confidence in Germany rose in March, survey data showed Tuesday, as scepticism about the outlook for Europe’s biggest economy fades slightly.
But caution is still warranted in view of ongoing uncertainty about the economic fallout from the slowdown in China, weak oil prices and the strength of the euro, analysts said.
And it was also too early to gauge what effect a string of deadly explosions in Brussels Tuesday will have on overall economic sentiment in the long run.
Both business and investor confidence have taken a battering in Germany in recent months amid concerns it cannot remain untouched by global uncertainties.
But in March, sentiment seems to be stabilising again, the survey data showed.
The Ifo institute’s closely-watched business climate index rose by a stronger-than-expected one point to 16.7 points in March, Ifo said in a statement.
At the same time, a separate investor sentiment index compiled by another think tank, ZEW, also edged up slightly, rising by 3.3 points to 4.3 points, but slightly short of analysts’ expectations.
The Ifo index is regarded as providing a more accurate gauge on real economic sentiment because it quizzes around 7,000 companies and businesses in the manufacturing, construction, wholesaling and retailing sectors.
It (Other OTC: ITGL – news) is calculated each month on the basis of companies’ assessments of the current business environment and the outlook for the next six months.
“German businesses are less sceptical than in February,” said Ifo chief Hans-Werner Sinn.
“Assessments of the current business situation improved, reaching their highest level in six months. After last month’s sharp decline, expectations also recovered somewhat,” Sinn said.
The ZEW barometer, on the other hand, polls around 200 analysts and institutional investors about their current assessment of the economic situation in Germany, as well as their expectations for the coming months.
– Reassuring sign –
Analysts said the rebound from recent monthly declines in both the Ifo and ZEW indices was fundamentally a reassuring sign.
“After collapsing four weeks ago due to the financial market turmoil, business expectations of manufacturers stabilised,” said UniCredit (EUREX: DE000A163206.EX – news) analyst Andreas Rees.
“The exaggerated pessimism of manufacturers primarily driven by the financial market turmoil at the start of the year has been priced out,” Rees said, adding that he was sticking to his growth forecast of 0.6 percent in the first quarter and 0.5 percent in the second quarter.
But Commerzbank economist Joerg Kraemer said that while the rise in the Ifo business climate came as a positive surprise, it “has not made up for the slump in February.”
The index “cannot be an all-clear signal; after all, the risks in China still clearly point to the downside,” he cautioned.
ING DiBa economist Carsten Brzeski was more optimistic.
“German businesses seem to have shaken off fears of long-lasting global slowdown,” he said.
“On any ordinary day, today’s German sentiment data would have been a reason for moderate optimism,” the expert said.
“Despite ongoing warnings and fears of a derailing of the global economy, the eurozone’s largest economy is still going strongly.”
Analysts said it was too early to estimate what toll a string of explosions in Brussels, killing at least 26 people, would have on sentiment in future months.
But Capital Economics economist Jennifer McKeown said that the latest sentiment surveys “suggest that the slowdown in activity seen at the start of the year has eased, but the surveys still point to only modest growth in the first quarter as a whole.”
With (Other OTC: WWTH – news) underlying inflation expected to remain “very weak”, pressure would remain strong on the ECB “to offer strong policy support,” the analyst added.
