German business morale soars to record high

The Ifo economic institute’s business climate index jumped from last month’s high of 116.7 points to a historic 117.5 points in November, beating analyst expectations.

“Sentiment among German businesses is very strong,” Ifo president Clemens Fuest said in a statement.

“The German economy is on track for a boom.”

Businesses were slightly more pessimistic about their current economic situation than in October, the survey showed, but they expressed greater optimism about the future.

The spike in business morale comes as Germany is searching for a way out of a political impasse after weeks-long arduous coalition talks to form a new government collapsed at the weekend.

Ifo pointed out that 90 percent of the roughly 7,000 firms who took part in the survey responded before the talks broke off late Sunday between Chancellor Angela Merkel’s conservatives, the Greens and the liberal Free Democrats.

“The first real test of how politics are currently impacting business sentiment will only come with the December Ifo index,” said economist Carsten Brzeski of ING Diba bank.

Nevertheless, he said, “in the short run, political uncertainty should hardly have any impact on growth”.

Looking at the Ifo index in detail, manufacturing firms, retailers and wholesalers were all more cheerful about their prospects.

Only construction companies scaled back their expectations “which nevertheless remain at a high level”, Ifo said.

The latest data add to a picture of an economy in robust health, with brisk domestic and foreign demand powered by record-low unemployment at home and a strengthening eurozone recovery.

The German government last month sharply lifted its economic growth forecast for 2017 from 1.5 to 2.0 percent, while Ifo raised its estimate from 1.9 to 2.3 percent.

As Germany’s parties weigh their next move amid pressure to avoid fresh elections, Brzeski said there was little reason for Europe’s powerhouse to fret over a spell of political turmoil.

“Somehow, the current situation in Germany is an excellent illustration of a phenomenon which has characterised the entire eurozone throughout the year: buoyant confidence and strong economic growth goes hand in hand with political uncertainty and instability,” said Brzeski.

“In our view, this dichotomy can easily continue in 2018, yielding another strong year for the German and eurozone economy.”