Germany's Ifo index of business sentiment edges up in June, signalling steady recovery

FRANKFURT – Germany’s Ifo index of business sentiment rose slightly in June, suggesting the eurozone’s largest economy remains on track for a return to stronger growth after a weak stretch.

The closely-watched index came in Monday at 105.9 points, up from 105.7 the month before and in line with analysts’ expectations.

Economists are monitoring Germany’s economy because it has been a key source of growth in the troubled 17-country euro currency union. Member countries such as Greece, Portugal, Spain and Italy are struggling with heavy debt and recessions.

The eurozone economy needs all the growth it can get; it shrank in the first quarter, the sixth consecutive quarterly decline. The European Central Bank says it expects a gradual recovery to set in during the second half of this year, but key indicators such as lending by banks to businesses remain weak.

Germany’s export-driven economy shrank by 0.7 per cent in the last three months of 2012 and then expanded only 0.1 per cent in the first quarter. It was held back by worries about the bailout of eurozone member Cyprus and by political uncertainty in Italy, where a confused election result delayed the formation of a government. Second quarter figures aren’t out until mid-August.

“The German economy seems to cruise along nice and steady, defying any growth concerns,” economist Carsten Brzeski at ING wrote in a research note to investors. Wage increases in an economy with low unemployment should keep consumers spending, he said, while the main risks are from stagnation in eurozone trading partners and any sudden slowdown in key export market China.

Christian Schulz at Berenberg Bank said signs that the eurozone might be leaving recession soon were positive for Germany. He cited Monday’s jump in the Italian consumer confidence index. “Chances rise that Germany can benefit from its strong fundamentals for the rest of the year and beyond,” he wrote.