German business confidence soars as Brexit fears ‘disappear’

Frankfurt (AFP) – German business confidence soared to its highest level in more than two years in September, the Ifo economic institute said Monday, recovering from a post-Brexit slump and signalling a rosier outlook for Europe’s largest economy.

The closely-watched index unexpectedly jumped to 109.5 points from 106.3 points in August to reach its highest reading since May 2014, the Munich-based Ifo said.

“The German economy is expecting a golden autumn,” Ifo president Clemens Fuest said in a statement.

Analysts surveyed by Factset had predicted the mood to stay unchanged.

The figure is all the more surprising after the index suffered a steep fall in August, when Ifo said the German economy had fallen into “a summer slump” as companies worried about the fallout from Britain’s decision to leave the European Union.

“The prominent Ifo index suggests that Brexit fears have disappeared as quickly as they had emerged,” said Carsten Brzeski, chief economist at ING Diba.

Ifo said morale had improved across the board, from manufacturing and retailing to the services sector, with confidence in the construction industry reaching a new high.

“Companies are clearly more optimistic about the months ahead. They are also more satisfied with their current business situation,” said Fuest.

– ‘Pinch of salt’ –

But analysts cautioned against reading too much into the survey, after a recent string of disappointing data out of Germany pointed to a gloomier picture.

German exports plummeted in July as demand weakened from outside the euro area, while industrial production shrank and demand for industrial orders showed only a slight increase.

Nordea Markets’ Holger Sandte said the September optimism should be taken “with a pinch of salt”. “We find the improvement a bit too strong to really reflect what is going on in the economy,” he said.

Capital Economics analyst Jennifer McKeown agreed.

“In all, we doubt that growth will be as strong as the Ifo now suggests, particularly with a modest rise in inflation set to damage the previously healthy consumer recovery,” she said. 

“But it does suggest that the German economy will continue to outperform its peers and reduces concerns raised by the latest hard data that growth could be grinding to a halt.”

Ifo’s headline figure is based on a survey of some 7,000 businesses who are asked about the current climate and their expectations for the next six months.

Within the index, current business sentiment climbed from just under 113 points in August to 114.7.

Confidence in the future outlook soared from 100.1 points to 104.5.

Germany’s Bundesbank expects the economy to grow by 1.7 percent this year and 1.4 percent in 2017, according to forecasts released before the Brexit referendum was held in June.