German businesses more confident about current situation - but less so about the future

German businesses are more optimistic about their current situation, but less so about their short-term growth prospects, according to new data from the Ifo institute.

The institute’s latest business climate index rose for the third consecutive month in July to 106.2 from 105.9 in June, above expectations of 106.1. The current assessment, meanwhile, came in at 110.1 for July, up from 109.4 the month before and just beating analyst expectations of a rise to 110.0.

However, the Ifo’s measure of short-term expectations came in at 102.4, down from 102.5 the month before.

This morning’s results follow better-than-expected purchasing manger’s index figures out yesterday.

The euro rose against the Swiss franc but weakened against other major currencies on the results. However, its performance was been distorted slightly by currency movements ahead of critical UK GDP data out at 09:30 (reported here).

Jennifer McKeown, senior European economist at Capital Economics, says that today's small rise adds to evidence that the economy is recovering, but is perhaps a disappointment when compared to the sharp rise in PMI recorded yesterday.

Note, however, that the expectations index edged back, mirroring the fall in the ZEW investor expectations index in July. What’s more, recent weak hard data on trade and industrial production were a warning not to get too carried away about the speed of the recovery. In all, while prospects for Germany are clearly better than those elsewhere in the euro-zone, we still see GDP rising modestly at best this year and next.

Source: Capital Economics

Meanwhile, Ifo economist Klaus Wohlrabe told Reuters that there is "no indication" the economies of other eurozone countries is negatively affecting German companies, and that it's too early to assess the effect of weak growth in China. He added that he expected growth of 0.9 per cent in the second quarter, followed by 0.4 per cent in the following two quarters, bringing full year growth to 0.6 per cent.