German business confidence hits 10-month high

German business confidence rose to its highest level in 10 months in April, as recovery in Europe's biggest economy continues apace, but optimism could soon begin to stall, the Ifo economic institute said Friday.

The Ifo institute's closely watched business climate index rose to 108.6 points this month, its highest level since June 2014, the think tank said in a statement.

It was the sixth consecutive monthly increase and was better than analysts had been expecting.

"The upswing in the German economy continues," said Ifo president Hans-Werner Sinn.

In particular, companies' assessments of their current business situation "once again improved considerably," Sinn said, but noted that "optimistic assessments of the business outlook were scaled back slightly."

Ifo calculates its headline index on the basis of companies' assessments of their current business environment and the outlook for the next six months.

The sub-index measuring current business rose to 113.9 points, also the highest level since June 2014.

But the outlook sub-index slipped slightly by 0.4 point to 103.5 points, the institute said.

Analysts said the slight decline in expectations was no cause for concern just yet.

"Despite the drop in expectations, there is no reason to ring the alarm bell," said Natixis economist Johannes Gareis.

In fact, the increase in the assessment of the current situation "suggests that the German economy is still gaining momentum," the expert said.

And further ahead, "we expect strong tailwinds from cheap oil, the low euro and low interest rates to drive the German economy forward," Gareis said.
BayernLB economist Stefan Kipar also felt that the German economy had "got off to a good start in the second quarter. Furthermore, the outlook for the coming months is positive."

Postbank economist Thilo Heidrich said the Ifo index "has been in a clear uptrend since November 2014" and attributed the slight softening of expectations component to uncertainty about Greece.

"Overall, the index points to a continuation of the current recovery. In view of the current favourable fundamentals, such as the low oil price, the weak euro and the positive situation on the labour market, we expect the German economy to continue to grow during the course of the year," Heidrich said.

- Unstoppable confidence? -

For ING DiBa economist Carsten Brzeski "German business optimism seems to be unstoppable, paving the road for an excellent year of growth."

The German economy "is in decent shape. The first months of the year point to a good, though not excellent, growth performance in the first quarter. And the next quarters should not be very different," he added.

Domestic demand was strong, thanks to record high employment, rising wages, falling energy prices and booming consumer demand driven by record low interest rates, the expert said.

Just a day earlier, the GfK consumer confidence index rose to its highest level since October 2011, "confirming the picture of almost euphoric consumers," Brzeski said.

Commerzbank economist Joerg Kraemer was more cautious, however.

The Ifo index "can't go much further now," he said.

"Demand growth from the emerging markets has eased off substantially, for one thing, and German profit margins are coming under gradual pressure from the marked rise in unit labour costs. One should not become overoptimistic for Germany's growth outlook," Kraemer warned.

Earlier this week, the government upgraded its growth forecasts for both this year and next year to 1.8 percent.