Industry Boosts Capacity Utilization for First Time in Two Years

German industry in March registered its first increase in capacity utilization in two years, the latest in a series of indicators that point to an incipient recovery in Europe's largest economy.

The quarterly indicator drawn up by the Munich-based Ifo economic research institute showed the average rate of capacity utilization in western German industry to have risen to a seasonally adjusted 83.3% in March from 82.8% in December.

The latest figure still falls four percentage points short of the March 2001 reading, but it is just 1 point below the average reading since 1993.

Increased capacity utilization reflects increased output, which in turn reflects increased demand. In line with the generally brightening economic picture, Ifo's closely watched barometer of the western German business climate had been rising since November.

But that rise was brought to an unexpected end last week, when the Munich-based institute reported a decline in its headline index from a revised 91.5 in March to 90.5 in April. But the announcement was accompanied by warnings from Ifo's experts that it would be wrong to read too much into the latest data, especially since the index had undergone a strong rise in March.

Now Ifo has published full details of its April business-climate survey, and these confirm that April did not bring any deterioration in western German business sentiment overall, merely in sentiment in the wholesale and retail sectors.

The balance between positive and negative sentiment in the manufacturing industries was more or less unchanged on the month at -5.6, the full breakdown shows.

Producers of pre-products, meanwhile, showed themselves to be more satisfied with their current situation and their prospects than they had been in March.

They are expecting the coming months to bring them above-average increases in capacity utilization.

But the latest data show that the general upturn has yet to impact on eastern Germany.

The region's manufacturing industries saw their capacity utilization decline in March to 79% from 77.7% in December.

And in the Ifo index of the region's business sentiment, the balance of positive and negative sentiment deteriorated from -0.8 in March to -3.2 percentage points in April, with worsening assessments of both the current situation and the prospects for the next six months.