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German business morale hits 2.5-year high

German business morale rose in February to its highest level since July 2011 in a sign that growth in Europe's largest economy is likely to accelerate in the first quarter after expanding only modestly last year.

The Munich-based Ifo think tank's business climate index, based on a monthly survey of some 7,000 firms, increased to 111.3, beating the consensus forecast in a Reuters poll for the index to hold steady at 110.6.

Sean Gallup | Getty Images News | Getty Images

The upbeat reading sent the euro to a day's high of $1.3772 and pushed German Bund futures down to a session low.

Economists said the survey pointed to an economic upturn.

"German businesses remain die hard optimists," said Carsten Brzeski, senior economist at ING.

(Read more: Euro zone's surprise growth boosts recovery hopes)

German sentiment indicators have generally been upbeat in recent months, though a ZEW survey last week showed morale among analysts and investors dropping.

Hard data have been rather more subdued, with exports, industrial output and orders all falling in December, prompting some economists to warn that the economy is not faring as well as the forward-looking "soft" surveys suggest.

The Ifo survey showed companies were the most positive about current conditions in almost two years but they became slightly more downbeat about their future prospects.

Some companies have expressed optimism of late, with steel distributor Kloeckner & Co saying the year's first few weeks went well and fashion house Hugo Boss saying it is confident of stronger growth this year.

(Read more: Time to curb the enthusiasm about Europe?)

While Germany powered ahead during the early years of the euro zone crisis, its performance weakened over the last two years and in 2013 it grew at its slowest pace since the global financial crisis.

But the government predicts gross domestic product (GDP) will increase by 1.8 percent this year as domestic demand boosts the economy even as foreign trade is expected to be a drag.

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