Slight March improvement in German business confidence

German business confidence, which has surged in recent months, rose only slightly in March, amid signs Europe’s biggest economy could be losing some of its momentum, data showed yesterday.

Nevertheless, analysts were optimistic that, after the eurozone debt crisis brought German growth to a standstill at the end of last year, the economy would pick up again this year.

Ifo’s closely watched business climate index, which has gained more than three full points in recent months, inched up fractionally again to 109.8 points in March from 109.7 points in February.

The reading was better than expected, analysts polled by Dow Jones Newswires had been pencilling in no change in the Ifo index this month.

It is in fact the fifth month in a row that the barometer has risen and it now stands at its highest level since July 2011.

Nevertheless, Ifo president Hans-Werner Sinn saw the data as a sign that the German economy “is losing some of its momentum”.

“The improvement in expectations was smaller and the business situation did not show any further improvement,” Mr Sinn said.

Ifo calculates its headline index on the basis of the assessments of around 2,500 companies of their current business and the outlook for the next six months.

And while the outlook sub-index rose to 102.7 points in March from 102.4 points in February, the sub-index measuring current business was unchanged at 117.4 points. By sector, companies in the manufacturing sector viewed their current business situation “somewhat less positively”, even if they assessed the outlook more favourably. In the retail sector, companies reported a clearly improved business situation and were also more optimistic about their six- month outlook, but in the construction sector, companies were less optimistic about their six-month business outlook. Despite the caution expressed by Ifo chief Sinn, analysts were confident about the outlook for Germany.

“The higher oil price, worries about a Chinese slowdown, the drama around Greece and the impact of austerity policies on Germany’s export market failed to impress German businesses much in March,” said Berenberg Bank economist Christian Schulz.

“The underlying strength of the economy has revealed itself in this indicator even at the height of the euro crisis in November 2011. The economic clock shows that Germany may well be at the beginning of another boom period,” Mr Schulz said.

Newedge Strategy analyst Annalisa Piazza was more cautious. “All in all, the picture for a modest recovery in the eurozone’s biggest economy in the second half of this year remains intact,” she said.

“However, near-term risks are skewed to the downside as oil prices might weigh on business profits and external demand remains sluggish, especially from the other main eurozone countries that suffer from a technical recession.”

Carsten Brzeski at ING Belgium said the Ifo data “show that German businesses have not lost their overwhelming optimism.”

And while the German economy was “facing a couple of new challenges, it should remain the eurozone growth showcase of this year”, Mr Brzeski said.