A key survey on March 28 showed that business confidence in Germany, Europe’s largest economy, unexpectedly jumped to its highest level in 15 years in March, writes Angela Balakrishnan. This boosted expectations that the European Central Bank (ECB) will soon raise interest rates again.
The main index of the Ifo institute’s confidence survey rose to 105,4 this month, from 103,4 in February. Analysts had expected it to fall. Holger Schmieding, an economist at Bank of America, said: ”After five lean years, Germany seems to be heading for a serious economic upswing.”
Rises in wholesale and retail trade confidence showed a recovery spreading from industry to the consumer sector, the survey illustrated, raising hopes that the German consumer may finally be starting to spend.
Coupled with acceleration in the eurozone money-supply data in February, analysts said the think tank’s survey suggested that the ECB would add to the interest rate rises it made in December and this month, probably in May, taking rates to 2,75% from 2,5%.
Most expect rates to be at 3% by late summer, but Lucy Hartiss at Capital Economics said the ECB could raise rates more aggressively than most people think. ”[This] confirms that the eurozone recovery has plenty of momentum … we see rates reaching 3,5% by year-end.”
Germany’s 2006 growth forecast stands at 1,4% but, after the latest Ifo reading, it could reach 2%, economists said.
Alexander Koch, an economist at HVB Group in Munich, said the rise in confidence looked too good to be true. ”One should not translate the increase one-on-one into future hard data,” he said. — Â