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German economy upturn

FRANKFURT: Germany's closely watched Ifo business climate index beat expectations in January by vaulting 100 for the first time in over two years and providing fresh evidence of an upturn in Europe's biggest economy.

The Ifo survey data released on Thursday showed the headline index for west Germany rising to 100.1 from 99.6 in December, above analysts' predictions which had averaged 99.9.

The west German Ifo index last reached a level above 100 points in September 1997.

"The euro's depreciation has undoubtedly contributed to this optimism and also news from the retail sector with positive winter sales," said Uwe Angenendt, chief economist at BHF Bank.

"The economy is still pointing upwards.The millennium effects don't appear to have materialised and that suggests the first quarter in Germany, Europe and the United States will be strong," he added.

The business expectations component rose to 109.4 from a revised 108.2 in December. The current business conditions index was steady at 91.2.

The euro jumped more than half a cent from the day's lows after the Ifo report and was quoted around $0.9940 in mid-morning trade.

Economists said the buoyant Ifo survey would not be enough to provoke the European Central Bank to tighten the monetary reins after its regular bi-weekly council discussions.

The ECB is widely expected to keep interest rates on hold only two weeks after it raised its three interest rates by a quarter-point, lifting the key refinancing rate to 3.25 percent. The ECB is due to announce its rate decision at around 1245 GMT.

"I don't think the Ifo business climate will be a trigger for the ECB to raise rates again this week, they want to see how the economy develops further," said Manuela Preuschl of Deutsche Bank Global Markets Research in Frankfurt.

None of 32 economists polled by Reuters during its fortnightly survey expected a rate rise at the current meeting but two-thirds expected another tightening in March or April.

ECB watchers said the central bank had struck a hawkish note in its February bulletin published last week, warning that inflation risks in the euro zone had increased.

Economists' prediction for the January Ifo index ranged from 99.2 to 100.5 points with some analysts anticipating a pause in the recent strong rising trend after the index gained 6.5 points in the second half of 1999.

Another strong rise in January made analysts revise their assumptions that fears of computer problems related to the 2000 date changeover would slow down business in the first months of 2000.

"Because of the millennium date changeover we were a bit less optimistic about January but this (Ifo) number indicates that German growth will be close to three percent," said Gerhard Grebe, chief economist at Bank Julius Baer in Frankfurt.

He said a forecast for a 2.5 percent growth repeated on Thursday by Finance Minister Hans Eichel was "a bit conservative."

The January survey offered yet another example of a rift between recovering, highly-industrialised western Germany, which accounts for 90 percent of the country's output and its unemployment-ridden east.

The headline east German index eased to 104.9 from 105.3 dragged down by a weaker reading in the current conditions component which fell to 120.0 from revised 124.1. Business expectations improved, however to 90.5 from December's revised 87.6 reading.-Reuters