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Brimming German confidence heralds recovery

BERLIN: German business confidence has hit a five-year high on the back of strong exports and resurgent domestic demand, the German Chambers of Industry and Commerce (DIHT) said on Wednesday.

Presenting a survey of 25,000 member companies, DIHT managing director Franz Schoser forecast accelerating economic growth amid moderate inflation, still low interest rates and a pickup in the value of the euro.

"We expect growth for 2000 of 2.5 percent with a rising trend during the course of the year," Schoser told a news conference.

The Bundesbank confirmed the view that leading indicators pointed to further recovery after Europe's largest economy lagged the pace in the region last year.

German capacity use has increased of late and the labour market improved at the start of 2000, the Bundesbank said in its February monthly report.

Against that background, short-term interest rates remained relatively low despite two interest rate hikes by the European Central Bank since November, the Bundesbank said, adding that the supply of liquidity in the euro area remained generous.

"Leading indicators point to a continuation of the economic expansion which is mirrored in the improved business confidence of companies and consumers," the Bundesbank wrote.

German inflation was being influenced by external factors and would peak in the early months of 2000, the Bundesbank said.

"But the price climate will remain basically unscathed," the Bundesbank added. "The price increase for imported services has - as far as can be discerned - not led to strong cost pressures yet."

In the DIHT's half-yearly survey of its members, mainly small- and medium-sized companies, 33 percent of companies said they expected business to improve - the highest score since the start of 1995 and up from 27 percent last autumn.

Some 17 percent of companies saw business deteriorating - down from 19 percent. The remainder saw no change.

Managers were even more upbeat about export prospects, with 44 percent saying they expected an improvement compared to 34 percent last time.

Schoser said Germany's recovery had gained both in breadth and depth in the opening weeks of this year. The mood was very positive in services and industry but still depressed in the construction sector.

He also expected the recent weakness in the euro - which had boosted exports - to give way to a consolidation followed by appreciation on the back of a strengthening German economy.

Asked about an upward blip in inflation resulting from the euro's recent weakness and strong world oil prices, Schoser said he hoped inflation would remain moderate and predicted a gradual tightening of monetary policy by the European Central Bank.

Echoing remarks on Tuesday by Bundesbank President Ernst Welteke, the German central bank also made it clear it regarded monetary policy as easy despite two consecutive ECB rate hikes.

"The liquidity conditions within the euro area remain generous," the central bank said. "Short-term real interest rates are still relatively low even after two tightenings of the monetary reins."

The Bundesbank estimated that the German economy grew by a seasonally adjusted 0.75 percent in the final quarter of 1999 from the previous quarter, equivalent to year-on-year growth of 2-1/2 percent, up from 1-1/2 percent in the third quarter.

The German Institute for Economic Research (DIW), one of the country's six leading economic think-tanks, forecast that the economy would expand by a seasonally adjusted 0.5 percent in the first quarter from the fourth quarter of 1999.

That would translate into year-on-year growth of 2.5 percent in the current quarter, up from 2.2 percent in the fourth quarter. The Federal Statistics Office is due to publish final Q4 growth figures early next month.-Reuters