January MNI analysts survey December November
median range
———————————————————————-
Business sentiment: 110.3 110.0 109.5-110.9 109.8 109.3
Current conditions: 112.8 113.4 112.6-113.9 112.9 112.3
Six-month outlook: 107.8 109.5 106.0-107.9 106.8 106.4
—

FRANKFURT (MNI) – Optimism among German businesses rose roughly in
line with forecasts in January, hitting a new series high as companies’
view of the current situation eroded slightly and expectations improved
for the fourth consecutive month, the Ifo institute reported on Friday.

Ifo’s business climate indicator rose half a point to 110.3,
compared to the MNI analysts survey median forecast of 110.0.

“The German economy has started the year with great vigour,” Ifo
President Hans-Werner Sinn said in a press release.

Respondents’ view of the current situation dipped 0.1 point to
112.8, while their outlook at the six-month horizon rose one point to an
all-time high of 107.8.

The stronger-than-expected rise in the Centre for European Economic
Research (ZEW)’s economic sentiment indicator this month also suggests a
further improvement in business ahead.

However, downside risks from rising energy and other commodity
prices could weigh on profits and sentiment.

Late last week, Brent crude oil broke through the symbolic
$100-a-barrel level for the first time since September 2008, while
prices for coal, steel and iron ore have hit multi-year or record levels
recently due to adverse weather conditions and supply disruptions.

Although oil prices have since pared back gains, the International
Energy Agency (IEA) highlighted the economic dangers of crude at high
levels. “Were $100/bbl oil to become entrenched in 2011, that would risk
pushing the [oil burden] figure through 5%,” it warned earlier this
month.

“True, this is a deliberately simplistic barometer of the impact of
higher oil prices, but equivalent levels of oil burden in the past have
clearly been associated with economic problems,” the IEA said.
“Ultimately, oil producers, financial investors and consumers all suffer
under such a scenario.”

With demand from abroad expected to slow as the global recovery
loses steam and Eurozone peripheral countries implement austerity
measures, Germany’s reliance on its export sector could also dampen
growth prospects.

The Bundesbank expects GDP growth to slow to 2.0% this year and to
1.5% next year.

Disaggregating Ifo’s trade and industry business climate index, the
manufacturing sentiment component rose 4.2 points to 27.7 in January,
while the construction component rebounded to -6.2 after dipping to
-15.7 points in December.

Conversely, morale in both wholesaling and retailing fell back this
month, slipping to 17.3 and 14.0 from 26.2 and 24.1, respectively.

Ifo’s services climate indicator maintained its upward trend to
start off 2011, rising to 28.0, its highest level since April 2007.

Service providers cited in the survey continued to view their
present business situation as “favourable”, while seeing developments
over the next six months “again more positively than in the previous
month,” Ifo said. Respondents also highlighted plans to take on more
staff in the near term.

— Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com —

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