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Business

Finally, good news for German economy

Did someone say "recession"? Germany's business climate is recovering, the closely-watched Ifo indicator suggests.

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All things must pass

These days, when economists have come to expect bad news, even a smidgen of growth is cause for rejoicing.

So Monday they took pleasure in slight upward movement on Germany's Ifo index, which shifted from 84.7 to 84.9.

It suggests that business confidence in west Germany rose in November for the first time since July. But the shift is minute, and still negative.

On the Ifo index, a score of 100 indicates that among the more than 7,000 businesses surveyed by the Ifo Institute of Economic Research in Munich, the average view is that Germany’s business climate is “satisfactory”.

Scores below 100 indicate dissatisfaction, while views that the business climate is “good” score above 100. The index is an average of these views, calculated by Ifo economists who weigh the importance of each opinion in proportion to the importance of the industry it represents.

Results are split between west and east Germany, because economic conditions still differ significantly across former borders in the once-divided country. Eastern confidence is generally higher, and it rebounded more strongly, from 96.5 to 97.3 in November.

Search for meaning

The new Ifo results could force some analysts to reconsider their views, since many following Europe’s largest economy have lately become accustomed to bad news.

Rising unemployment figures, alongside German Finance Minister Hans Eichel’s warning that economic growth may slump as low as 0.75 percent in 2002, have compelled many analysts to predict a long downward slide.

But the rising Ifo appears to be part of a small but important trend in Europe, Deutsche Bank senior economist Manuela Preuschl told Deutsche Welle Online.

Recent indicators for business in Belgium and Italy also suggested that a recovery is underway, despite a dip in growth following the September 11 terrorist attacks in the United States.

“We knew there could be a recovery in the pipeline, but this is better than expected,” Preuschl said, adding though that “the assessment of current conditions is still weak.”

She warned that “everyone is quite aware that in this whole fight against terrorism that there are a lot of risks for the world economy.”

Business confidence has been one of the war’s first casualties. Deutsche Bank’s chief economist, Norbert Walter, published an opinion ten days ago calling for a special economic stimulus package to set Germany’s economy back on track.

Walter’s proposal included a highly unusual suggestion – temporary suspension of the European Union’s standard on national debt, no more than 3 percent of gross domestic product, in order to allow a strategic burst of state spending next year. In theory, this would spur a recovery.

Following the Ifo release, Preuschl said she is tentatively confident that a recovery is already underway, powered by "massive" interest rate cuts by the US Federal Reserve and smaller cuts by the European Central Bank.

The US government’s aggressive fiscal programme for post-attack recovery is helping, too, she said, now that the “corrections” investors made this year by “bursting the tech bubble” seem to have run their course.

Forecasts for economic growth in the European Union do not anticipate a recession in 2002. But economists remain jittery, conscious that indicators like the Ifo cannot take unexpected events into account.

The lasting lesson of September 11 is that what looks like important news today can be irrelevant tomorrow.

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