German business climate improves for fourth month in a row

The German IFO current assessment index rose from 110.1 to 112 in August, beating expectations of a rise to 111.0.

Business climate (BCI) saw a jump from 106.2 to 107.5 (107.0 expected) and expectations increase from 102.4 to 103.3 (103.0 expected).

Jennifer McKeown, senior European economist, Capital Economics:

The rise was due to improvements in both current conditions and businesses’ expectations. On past form, the BCI now appears consistent with annual GDP growth of nearly 3%, compared to Q2’s 0.5%.

We doubt that the recovery will be this rapid. Other surveys like the PMI point to far more modest growth and exports will continue to be held back by weak demand from key markets elsewhere in the euro-zone.

Christian Schulz, senior economist, Berenberg:

The August improvement was driven by manufacturing, the backbone of Germany’s economy, while services, construction and retail trade confidence eased a slightly.

A healthy expansion in Germany is a necessary, if not sufficient, condition for a sustained recovery in the Eurozone. The crisis countries in the periphery will continue to rely on exports to Germany, amongst others, to return to growth. The more countries have reformed their economies, the more they will be able to benefit from German growth.