German business confidence leaps to a five year high

Its latest business climate indicator leapt to 99.6 points from 97.8 after a brief setback in November, resuming an upward trend seen since the late spring.

For its closely watched monthly poll, IFO surveys around 7,000 companies on their view of current business and expectations for the next 6 months. IFO President Hans-Werner Sinn said manufacturers were "clearly more optimistic" regarding the outlook and expected to profit from "even stronger impulses from the export business".

Particularly welcome was the fact that companies in all main areas, in the manufacturing, construction, and services sectors, were feeling more confident both about their current business situation and the outlook for the coming months, Hans-Werner Sinn added.

Several research institutes have revised upwards their growth forecasts for 2006 from the previously assumed plus 1.5 per cent to plus 2.0 per cent.

The new "Grand Coalition" government was quick to claim some of the merits of the evident recovery for the newly elected Chancellor Angela Merkel and her "Black / Red" cabinet.

A government spokesman said in Berlin the Christian Democrats and the Social Democrats with their commonsense agreements and resolute first decisions had clearly stimulated the country's economic growth potential and boosted the mood in the business community.

Stagnating private consumption, however, remains to be a stumbling block for a fundamental change. The average German consumer, worried by the high unemployment rate and expected cuts of social benefits, still keeps a tight grip on his purse.