Economic Recovery German Business Sentiment Returns to Pre-Crisis Levels

German business sentiment improved more than expected in November to reach its best level since the financial crisis struck in 2008, data on Tuesday showed. The figures, together with news of stronger growth in the third quarter, confirm that Europe's largest economy is recovering -- even if unemployment is still expected to rise.

A container ship leaving Hamburg port this month: Reviving exports are expected to drive German growth next year, despite the strong euro.

A container ship leaving Hamburg port this month: Reviving exports are expected to drive German growth next year, despite the strong euro.

German business sentiment improved surprisingly sharply in November to reach the same level as before the outbreak of the global financial crisis in late summer 2008, figures released on Tuesday showed.

The monthly business climate index compiled by the Ifo economic research institute rose by a bigger-than-expected 1.9 points to 93.9, the eighth consecutive increase. Business managers were also more upbeat about the outlook for the coming six months than they had been in October, according to a corporate survey on which the index, one of of Germany's most important economic indicators, is based.

"The German economy is continuing to work its way out of the crisis," Ifo President Hans-Werner Sinn said in a statement. Sentiment has continued improving in the manufacturing sector as well as in the wholesale and retail sectors, while the construction industry has grown more pessimistic about its outlook, Ifo said.

Companies said their outlook for exports has also improved slightly, despite the strength of the euro which makes German products more expensive to buy in countries outside the euro zone.

Other key figures on Tuesday supported the assessment that Europe's biggest economy is recovering from its worst downturn since the 1930s. Gross domestic product grew 0.7 percent in the third quarter from the previous quarter, marking the strongest growth since early 2008.

That marked a continuation of the trend in the second quarter, when the economy grew 0.4 percent. "The German economy is continuing to recover from the strong downturn of last winter," the Federal Statistics Office said in a statement.

Growth was boosted by investment in construction and machinery as well as by goods exports which increased by 4.9 percent quarter-on-quarter. Private consumer spending fell by 0.9 percent, however.

Exports, Investments to Drive Weak 2010 Growth

Ralph Solveen, an economist at Commerzbank, attributed that decline to the expiry of the government's scrapping bonus in early September which had boosted sales of small cars.

"Consumer spending will remain weak because of rising unemployment but it won't collapse," Solveen said. "Consumption won't help drive growth in 2010. The impetus will instead come from exports but also from investments."

Economists at Commerzbank and Citibank now expect growth to accelerate slightly to around 0.8 percent in the final quarter of 2009. Despite the improvement, unemployment is expected to rise next year as companies hit by the crisis restructure and lay off workers.

"If the economy grows just 1.5 percent as predicted, companies won't be able to avoid redundancies," said Sebastian Wanke, an economist at Dekabank.

Chancellor Angela Merkel had warned in her government statement to parliament on Nov. 10 that the full force of the recession would hit Germany in 2010. So far, short-time working programs have enabled firms to largely put off redundancies, but those programs are temporary.

A comparison with the year-earlier quarter illustrates the extent of the downturn -- GDP in the third quarter was down 4.7 percent from the same period in 2008. In the second quarter, the drop had been as high as 7.0 percent.

cro -- with wire reports


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