German business confidence rose for the third straight month in June, a key survey released on Monday has revealed, but there's still bad news on the employment front.
Industry's cogs are turning but recovery promises to be slow
The Ifo business index for June made larger than expected gains to 85.9 points, following a lower than expected rise in May to 84.2 points.
The business index, released by the Institute for Economic Research in Munich, is seen as a major indicator of the economic mood in Europe.
Ifo's head of industry research, Dr. Gernot Nerb, said the index only measured expectations, but that it was a positive sign.
“Expectations have been improving now for more than six months and this signals that the worst might be over,” he said.
Falling global demand has taken a chunk out Germany's export earnings.
Based on a survey of 7,000 German executives, the index has risen steadily since bottoming out at a 26-year-low in March, amid fears about the fallout from the steep global economic downturn.
The Ifo has gained ground on hopes that a string of big government fiscal stimulus packages and hefty interest rate cuts around the world would open the way for an economic pickup into 2010.
Earlier this month German investor confidence jumped to a three-year high, a key indicator released last Tuesday showed.
The Centre for European Economic Research (ZEW) said its index measuring the mood among institutional investors posted its eighth consecutive monthly rise, surpassing forecasts to reach 44.8 points in June.
German economy will shrink further
Despite that, forecasters say the German economy will shrink by 6 per cent or more this year, dragged down by falling exports as a sharp drop in global trade undercuts foreign orders for the world's biggest exporting nation. That means things will get worse before they get better on the employmern front.
Dr Nerb said that despite the continuing upward trend, it would take at least 6 to 9 months before there was an improvement in the labor market.
“The labor market is always lagging. When demand picks up and turnover starts to improve then companies are reluctant to hire additional staff because there's so much slack in the companies,” he said.
“It's only in later stages when the upswing picks up more momentum that they start to hire additional staff and this will not be before spring next year.”
The picture may become clearer later this week, when a new round of monthly sentiment surveys is due out. This includes German and French consumer confidence reports as well as Belgium's business sentiment indicator, which is considered to be a bellwether survey for the 16-member eurozone.
Author: Carl Holm
Editor: Nick Amies