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Oil price, euro fall spur German business confidence

Thursday, December 18, 2014 - 18:49

[BERLIN] German business confidence rose again in December, the Ifo economic institute said on Thursday, as the prospects for Europe's biggest economy grew sunnier.

Auspicious factors including the tumbling price of oil and the weak euro sent the Ifo institute's closely watched business climate index up to 105.5 points this month from 104.7 points in November, the think tank said.

"The outlook for the months ahead continued to brighten," Ifo chief Hans-Werner Sinn said in a statement.

"Dropping oil prices and a falling euro exchange rate are seasonal gifts to the German economy."

Ifo calculates its headline index on the basis of companies' assessments of current business and the outlook for the next six months.

The sub-index measuring current business held steady at 110.0 points compared to last month, while the outlook sub-index climbed 1.3 points to 101.1 points.

The data came on the back of a survey released Tuesday showing a sharp rise in investor sentiment in Germany.

The widely watched investor confidence index calculated by the ZEW economic institute jumped by 23.4 points in December, after increasing for the first time this year in November.

Analysts were encouraged by the improved Ifo index following a positive turnaround in November from long months of decline.

"German business confidence confirmed the decent rebound of the economy in the final quarter of the year," said Carsten Brzeski of ING-Diba bank in Frankfurt.

He said that the worst crises threatening the economy - the Ukraine conflict and eurozone weakness - had eased of late.

But Mr Brzeski said "complacency" undermining a drive for new economic reforms, Russia's economic woes and Germany's over-reliance on exports all posed risks.

Heinrich Bayer, a Postbank analyst, said the Ifo report indicated that German domestic demand "would stay on course for growth while the pressures and insecurities weighing on exports are losing relevance".

Christian Schulz of Berenberg Bank said the survey "heralds the end of the economic rough patch".

"Resilient export expectations, a strong competitive position, receding uncertainty over Russia's action in Ukraine and cheap oil boost the outlook for Germany's industrial backbone," he said.

"We expect robust consumption growth to continue in 2015, joined by an investment rebound." Economist Jonathan Loynes of Capital Economics in London said that the favourable euro exchange rate and the likelihood of quantitative easing stimulus measures by the European Central Bank appeared to be offsetting concerns about Russia and fresh political instability in Greece.

However he said that the Ifo data was "consistent with only very sluggish growth in German" gross domestic product.

"While the survey provides some comfort that the German economy is still growing, it suggests that growth remains well short of the rates required to drive a decent upturn across the eurozone," he said.

AFP