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'Euphoric' exporters lift German business morale to new high

By Paul Carrel and Irene Preisinger

By Paul Carrel and Irene Preisinger

BERLIN (Reuters) - German business morale hit a record high in July as "euphoric" manufacturers, shrugging off the impact of a strong euro, anticipated a surge in already robust exports from Europe's biggest economy.

The Munich-based Ifo economic institute said on Tuesday its business climate index, based on a monthly survey of some 7,000 firms, hit its third record high in as many months with a rise to 116.0 from 115.2 in June.

That beat a Reuters consensus forecast for a fall to 114.9.

The news will make welcome reading for Chancellor Angela Merkel, who is seeking a fourth term in office on Sept. 24. With the economy in rude health, her conservatives are promising full employment by 2025.

Ifo economist Klaus Wohlrabe said manufacturers were particularly optimistic, with the export sector leading the way. Businesses expected "exports to rise significantly", he added.

He said German businesses were experienced in managing exchange rates and not impeded by gains in the euro, which hit an almost two-year high against an ailing dollar on Monday.

"Hardly anything seems to be able to hit the German economy," he told Reuters.

The high-end nature of much of Germany's industrial output has made its export sector less susceptible to currency fluctuations than counterparts elsewhere, which often compete more on cost than quality.

"Sentiment among German businesses is euphoric," Ifo chief Clemens Fuest said. "Germany's economy is powering ahead."

Last year, only just over a third of German exports went to other euro area countries, official figures show.

Comparisons with other euro zone states are hard to assess as export data for the whole bloc runs only to May, when the euro was weaker.

But domestic statistics agency readings from Rome show Italian April-June exports to non-EU countries fell 1.5 pct from the previous three months, the first such decrease since the start of 2016.

RISKS AND CAVEATS

The Ifo sub-index on manufacturing jumped. The construction and wholesaling sectors also saw morale rise, while sentiment fell only in the retail sector.

Underlining the economy's health, German chemicals and pharmaceutical companies association VCI said on Thursday it expected business to continue to do well in the second half of 2017, raising its full-year revenue growth forecast to 5 percent.

But Berenberg bank economist Florian Hense said surveys had exaggerated the underlying strength of Germany's economy in the first half of this year, and he expected growth in the second quarter to have matched the first quarter's 0.6 percent rather than accelerated.

The Federal Statistics Office publishes preliminary growth data for April-June in mid-August.

Unicredit economist Thomas Strobel saw risks to business morale in the month ahead from diesel emissions and cartel scandals in the German auto industry and political tensions with Turkey.

The European Commission said on Saturday that antitrust regulators were investigating a possible auto industry cartel following a tip-off.

But Strobel added that the overall trend was likely to remain upward "and should continue to benefit German export-dependent manufacturers in the medium term."

Last week, Germany's ZEW institute said the economic outlook remained positive, despite a fall in investor morale for the second consecutive month in July which economists attributed to the stronger euro.

The International Monetary Fund expects the German economy to grow by 1.8 percent in 2017 and 1.6 percent in 2018.

(Writing by Paul Carrel; additional reporting by Crispian Balmer in Rome,; Editing by Michelle Martin and John Stonestreet)