Date:-23-July-2010

German sentiment at 3 year high

German business sentiment leapt by a record margin in July to reach its highest level in three years, fuelled by a World Cup buzz that boosted consumer spending in Europe's largest economy, a survey showed today.

The unexpected jump, which boosted the euro, pointed to strong economic growth in the current quarter, though if the German recovery continued to be export-led, weaker countries in the single currency zone might suffer, analysts said.

The Munich-based Ifo economic think tank said its business climate index, based on a monthly survey of some 7,000 firms, rose this month to 106.2 from 101.8 in June.

This lifted the indicator to its highest level since July 2007 and was way above the mid-range forecast in a Reuters poll of 42 economists for a dip to 101.6.

"The German economy is in a party mood," Ifo said. "The increase is the largest since German reunification (in 1990)."

The German data followed reports showing corporate sentiment in France and Italian consumer morale were unexpectedly robust in July, raising hopes for Europe's economic outlook, although that was tempered by an unexpected drop in French consumer spending on manufactured goods in June.

Recent indicators show the German economy has gained strength since a winter freeze that dampened a recovery from the country's sharpest post-war recession last year.

However, economists were astonished by the extent to which Germany has so far resisted the impact of a sovereign debt crisis in Europe and planned austerity cuts that followed it.

"These numbers are just insane," said Ralph Solveen, an economist at Commerzbank. "The economy is really growing strongly. We'll see a strong growth rate in the third quarter."

Germany's manufacturing sector, a key driver of growth, has powered the country's pick-up, with engineering orders posting a record increase in May, boosted by vibrant demand from abroad and a more favourable euro exchange rate.

Source: The Irish Times / Reuters