German business sentiment surprises with rise in November

BERLIN (Reuters): German business sentiment surprised with its first rise in seven months in November, as companies turned more optimistic and put Europe’s powerhouse economy on track for stronger growth again next year.

The Munich-based Ifo think tank said on Friday its business climate index, based on a monthly survey of some 7,000 firms, rose to 101.4 in November from 100.0 in October, by far surpassing even the highest estimate in a Reuters poll.

“The German economy is holding up in the face of the euro crisis,” Ifo President Hans-Werner Sinn said in a statement.  The median of 41 economists had forecast a drop to 99.5, with figures ranging from 98.5 to 100.3.

The euro rose to a three-week high against the dollar and European stocks trimmed losses after the better-than-expected reading.

Germany proved largely immune to the crisis in the first two years of the debt turmoil that has hammered Europe but its main export market, the euro zone, has slid into recession and a worsening global outlook has weighed on German growth - confirmed at 0.2 percent in the third quarter.

Economists now expect a year-end contraction but say Germany will avoid recession, helped by trade with partners outside Europe.

“That was a positive surprise. The brightening climate raises hopes that the economy will stabilize after what will likely be a weak fourth quarter. An increase is nevertheless not a sign of a turnaround,” said Ralph Solveen of Commerzbank.

“There were positive signals from exports to Asia and the United States. On top of that, fears that the euro zone would break apart have ebbed in recent months. Those fears were having a massive braking affect on economic growth.”

Firms were more upbeat about their business outlook, with a sub-index rising to 108.1 from a revised 107.2 in October. There were also less pessimistic about their current business, Ifo said, as the conditions index rose to 95.2 from 93.2.

Wohlrabe said firms, concerned by the uncertainty surrounding an unresolved euro zone debt crisis, were still putting off investments, however.