1. German business morale brightens as Greece jitters ease

German business morale brightens as Greece jitters ease

Business confidence in Germany unexpectedly improved in July after two monthly drops as an agreement between Greece and its creditors for talks on a third bailout lifted the mood at firms in Europe's largest economy.

By: | Published: July 27, 2015 6:35 PM

Business confidence in Germany unexpectedly improved in July after two monthly drops as an agreement between Greece and its creditors for talks on a third bailout lifted the mood at firms in Europe’s largest economy.

The Munich-based Ifo institute said its business climate index, based on a monthly survey of some 7,000 firms, rose to 108.0 from a revised 107.5 in June. That beat the Reuters consensus for a drop to 107.2 and sent the euro up to a two-week high against the dollar.

“Forget about Greece? This is at least how German businesses seem to look at Greek turbulences of the last weeks, judging from the latest Ifo numbers,” said Carsten Brzeski, an economist at ING.

Ifo president Hans-Werner Sinn said the easing of the crisis had helped boost sentiment in Germany.

Another supporting factor was the nuclear deal Iran reached with world powers. Ifo economist Klaus Wohlrabe said the deal had likely boosted expectations in the industrial sector, particularly in the chemical and mineral oil processing branches.

Last week Germany and Iran pledged to re-establish economic ties in anticipation of Western economic sanctions against Tehran being lifted following the landmark agreement.

The Ifo survey showed companies facing the future with brighter expectations than last month and they also considered their current situation to be better.

The morale among companies in the manufacturing and wholesaling sectors picked up but it took a turn for a worse among retailers and construction companies.

Some German companies have reported strong results of late, with Daimler’s second-quarter operating profit hitting a record high while sportswear company Puma sold more than expected during that period.

German economic growth weakened to 0.3 percent at the start of this year and the finance ministry said last week that the economy would probably expand by around the same amount between April and June, with domestic demand propelling growth while foreign trade resurged.

But Ifo’s Wohlrabe said exports, Germany’s traditional growth engine, would probably not provide strong impetus due to cooling demand in China, where the economy is on course to grow at its slowest pace in over two decades this year.

He also said the effect of a weaker euro had expired, adding that the strong domestic situation was propelling the economy.

Jennifer McKeown, senior economist at Capital Economics, said the Ifo survey showed the recovery was continuing despite Greece’s woes, albeit without gaining much momentum.

She warned, however, that sentiment in Germany could deteriorate again as negotiations in Greece could stumble.

On Saturday a Greek finance ministry official said organisational issues meant that talks between Athens and its international lenders on the rescue package would be delayed by a couple of days.

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