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Is Europe No Longer an Investment Afterthought?

German business confidence rises sharply

BERLIN - German business sentiment rose strongly in August to hit its highest level in nearly a year, a closely-watched survey showed on Wednesday, adding to signs that Europe’s largest economy is emerging quickly from recession.

The Ifo think tank said its business climate index, based on a monthly poll of some 7,000 firms, rose to 90.5 from an upwardly revised 87.4 in July. A Reuters poll of 45 economists had pointed to a reading of 88.9.

The rise in morale could offer support for Chancellor Angela Merkel before a federal election on September 27.

The euro briefly rose against the dollar after the release of the data before giving up the gains. Ifo’s headline reading rose for the fifth month in a row, hitting its highest level since September 2008.

”These are extremely positive numbers that go well beyond our expectations,” said HSBC Trinkaus analyst Stefan Schilbe.

”After the positive (economic) growth rate in the second quarter, the upturn will most likely firm up. We’re expecting robust growth rates in the second half of the year,” he added.

News of the rise in sentiment followed a report on Tuesday which showed Germany exited recession in the second quarter, despite a massive drop in inventories, and that restocking by firms could spur the economy to faster growth.

An Ifo expectations index surged to 95.0 from 90.4, the biggest monthly gain since German reunification in 1990. A current conditions index rose to 86.1 from an upwardly revised 84.4 in July.

German firms have reported signs of a stabilisation in business as the economy emerges from its deepest post-war recession, which saw four straight quarters of contraction.

Steelmaker ThyssenKrupp said earlier this month the construction, automotive, shipbuilding and machinery industries that dominate its customer base showed signs in June of pulling out of a slump that curbed demand for its products.

Analysts believe the German economy should rally as companies ramp up production and rebuild their depleted stocks. Gross domestic product (OTC:GDP) grew 0.3 per cent in April-June period.