German economic sentiment climbs to 3-year high, boosts recovery hopes
2013-03-19 14:29:45
Germany's economic confidence unexpectedly improved for the fourth successive month in March to the highest level in three years, fueling hopes that the economy could get back on the growth path in the first quarter, despite widespread weakness in the Eurozone.
The indicator of economic expectations, which is designed to forecast economic developments six months in advance, rose to 48.5 points from 48.2 points in February, a survey by the Center for European Economic Research/ZEW showed Tuesday.
The latest score was the best since April 2010. Economists had forecast the index to decline to 48.1 points.
The survey showed that the risk of the Eurozone debt crisis worsening has increased, against the backdrop of the political uncertainty in Italy and the controversial rescue package for Cyprus. This may have contributed to the fact that the indicator has not increased substantially this month, the Mannheim-based ZEW said.
"The experience of the last years has shown that as long as the euro crisis is simmering on a low flame, the German economy remains a crisis beneficiary," ING Bank Senior Economist Carsten Brzeski said.
"However, as soon as the crisis boils over and German businesses and consumers start to worry about the future of the Eurozone, the economy also suffers."
The measure of the current economic situation jumped to 13.6 points in March from 5.2 points in the previous month. Economists had forecast a reading of 6.
Meanwhile, the indicator of economic expectations for the euro area decreased sharply to 33.4 points from 42.4 points in February, and the indicator for the current situation in the currency bloc dropped to -76.1 points from -75.6 points.
According to financial market experts who participated in the survey, the economic situation in Germany is likely to improve over the coming months, though the Eurozone debt crisis remains the biggest risk.
"Most responses will have been taken before the flare-up of the crisis in Cyprus, which could clearly damage sentiment regarding the financial system and economy of the euro-zone as a whole," Capital Economics Senior European Economist Jennifer McKeown said.
"We suspect that sentiment will weaken in the coming months and, while Germany should continue to easily outperform the rest of the euro-zone, a strong recovery seems like too much to hope for."
As the still-unresolved debt crisis took its toll over Eurozone's largest economy, the 17-nation currency bloc moved deeper into recession at the end of 2012 with the GDP shrinking the most since the first quarter of 2009.
In February, results of a forward-looking survey by the GfK showed that Germany's consumer confidence is set to improve for the second straight month in March, with expectations turning more optimistic.
Earlier, the Ifo Institute said that sentiment among German businesses improved to a ten-month high in February, in a clear indication that the economy is recovering.
The German economy contracted 0.6 percent in the final quarter of 2012, following a 0.2 percent expansion in the third quarter. Bundesbank expects the German economy to return to growth in the first quarter and sees a 0.4 percent expansion for the whole of 2013.