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UPDATE 1-German business morale rise boosts recovery hopes
January 27, 2009 / 9:55 AM / 9 years ago

UPDATE 1-German business morale rise boosts recovery hopes

(Adds market reaction, analyst comment)

BERLIN, Jan 27 (Reuters) - German corporate sentiment unexpectedly rose for the first time in eight months in January, suggesting interest rate cuts and billions of euros in fiscal stimulus are boosting recovery hopes in Europe’s largest economy.

The Munich-based Ifo economic research institute said its business climate index, based on a monthly poll of around 7,000 firms, rose to 83.0 in January from an upwardly revised 82.7 in December.

A Reuters poll of 50 economists had pointed to a reading of 81.3, with forecasts ranging from 79.0 to 83.5 ECONDE.

The euro jumped to its highest level in a week against the dollar and Bund futures slipped after the data.

“Today’s Ifo index shows that the aggressive German fiscal answer to the worst recession since World War Two and the ongoing monetary easing have possibly turned on the light at the end of the tunnel,” said Carsten Brzeski at ING Financial Markets.

Earlier on Tuesday, Chancellor Angela Merkel’s cabinet approved a record 50 billion euro ($65.72 billion) stimulus package.

In other positive news from the corporate sector, German industrial conglomerate Siemens (SIEGn.DE) stuck to its outlook after its 2009 fiscal year started well despite the brutal knock-on effects of the credit crisis.

“Siemens got off to a good start in fiscal 2009, including better order performance than most of our competitors in the December quarter,” Chief Executive Peter Loescher said.

But Ifo economist Klaus Abberger told Reuters it was too early to sound the all-clear on the German economy.

Germany profited from a global economic upswing in recent years but its strong dependence on the export sector has now emerged as a weakness as foreign demand slumps.

“I have never seen, in my more than 40 years of experience, such a sharp slump as we have seen in the past months,” ThyssenKrupp (TKAG.DE) Chief Executive Ekkehard Schulz told a general shareholders meeting last Friday.

Last week, the government forecast the economy would contract by 2.25 percent this year. Since World War Two, the economy has never contracted by more than 1 percent in a year.

The government forecast was a marked downward revision from a projection it made last October for 0.2 percent growth, highlighting just how quickly the outlook for the economy has darkened.

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