German business confidence at ten-month high, says Ifo

Germany's economic growth looks set to pick up after a new report revealed business confidence climbed to a ten-month high in April.

The Ifo Business Climate Index for German trade and industry rose to 108.6 this month, up from 107.9 in March, signalling a significant improvement in the assessment of the current business environment in Europe's largest economy.

Ahead of the publication, a survey of 36 economists conducted by Bloomberg produced a median estimate of 108.4.

The climate indicator for the manufacturing sector enjoyed its sixth successive month of growth, with manufacturers viewing the current business situation more favourably than in March.

However, they also displayed slightly less positivity about future business developments, while utilisation of capacity dipped to 84.4 per cent - one percentage point higher than the long-term average.

Meanwhile, the wholesaling industry saw its business climate indicator surge to its highest level in almost a year, driven by far more optimistic predictions from companies in the sector. In contrast, the number of very good assessments about the current climate was slightly lower than in March.

Retailers gave less favourable current assessments than previous months and were slightly less confident about the future outlook for the sector.

The Ifo report also revealed a welcome return to positivity for the construction industry, where the index rose after six consecutive decreases. Contractors were noticeably more satisfied with the existing climate, while the short-term outlook for the sector also improved.

Speaking to Reuters, Ifo economist Klaus Wohlrabe said prospects for the German economy are "very good", with the weakness of the euro helping to lessen the effect of disappointing growth in emerging markets such as Brazil, China and Russia.

Responding to the figures, Aline Schuiling, senior economist at ABN Amro Bank NV in Amsterdam, told Bloomberg: "I'm quite optimistic about the German economy - the lights are on green, the euro is low, energy prices have dropped.

"The biggest source of uncertainty for Europe at the moment is the situation in Greece - that could create some disruption if it doesn't evolve as we all hope."

As well as being of great significance to the outlook for Germany's economy, the report represents good news for the rest of the eurozone. 

Germany accounts for more than a quarter of gross domestic product in the 19-nation bloc, meaning its growth - or otherwise - is extremely important to the economic health of the area.

The country's central bank has previously projected "quite robust" growth for the German economy this year, although the recovery is far from guaranteed, as demonstrated by declines in investor sentiment.

In the wake of the report, the value of the euro saw little change, trading at at $1.0885 early on Friday morning. However, the benchmark DAX Index saw an increase of 0.3 per cent.

Earlier this week, Germany's minister for economic affairs Sigmar Gabriel revealed the government will capitalise on the improved conditions to increase investment in an effort to further drive the recovery.

"Investment in education and research, in infrastructure, as well as a better environment for private investment, are important starting points," he explained.