German business confidence edges higher

FRANKFURT - Agence France-Presse

AFP Photo

German business confidence beat expectations by rising slightly in September, reflecting the continued robustness of Europe's biggest economy amid the current financial market turbulence, the Ifo economic institute said on Sept.24.

The Ifo institute's closely-watched business climate index rose to 108.5 points this month from 108.4 points in August, beating analysts' expectations for a slight fall, Ifo said in a statement.
 
"The German economy is proving robust," said Ifo president Hans-Werner Sinn.
 
"Companies assessed their current business situation slightly less favourably than in August. However, they expressed greater optimism about future business developments."    

Ifo calculates its headline index on the basis of companies' assessments of the current business environment and the outlook for the next six months.
 
The sub-index measuring current business fell to 114.0 points, while the outlook sub-index rose to 103.3 points, the institute said.
 
Analysts welcomed the renewed rise in the Ifo barometer.
 
"The small rise ... is a modestly pleasant surprise in light of the recent softening in some other business surveys," said Capital Economics economist Jonathan Loynes.    

"But there are some reasons for caution," the expert added.
 
The Ifo survey tended to lag behind other leading sentiment indicators, which had softened in September.    
"And, of course, none of the surveys will yet have picked up the impact of the VW scandal. While the economic effects will not all be negative -- indeed, the recall work will presumably boost activity -- it would be no surprise to see sentiment in the German industrial sector fall in the next round of surveys," Loynes said.
 
German auto giant Volkswagen is embroiled in a massive pollution cheating scandal that has sparked a US criminal investigation and worldwide legal action with still unfathomable financial consequences for the auto giant.
 
Given the importance and weight of the auto sector, some observers are concerned about potential fallout for the German economy as a whole.    

Contacted by AFP, a spokesman for Ifo said that most responses in the survey had been submitted in the first two weeks of September, before the VW scandal erupted.    

Natixis economist Johannes Gareis said the slight uptick in the Ifo index in September was "encouraging but it does not reflect this week's shocking disclosure from Volkswagen, one of the largest private sector employers in Germany."  

He felt the Ifo index could therefore fall next month.    

"Nevertheless, today's update on the Ifo index should be interpreted as a signal that Germany's economy is in good shape and it seems that China's economic wobbles have so far not reached German businesses," Gareis said.    

UniCredit economist Andreas Rees said the latest Ifo reading "shows that China still did not leave any braking marks on export-oriented manufacturers."  

And he added: "At this stage, it is way too early to derive any reliable estimate whether and to which extent the events at Volkswagen will have a dampening effect on the overall economy."