By Maria Martinez
BERLIN (Reuters) -German business morale rose in March, a survey showed on Tuesday, as companies expect a recovery after two years of contraction in Europe’s largest economy.
The Ifo institute said its business climate index stood at 86.7 in March from 85.3 in February, in line with the forecasts of analysts polled by Reuters.
Companies were more satisfied with the current situation and their expectations also rose noticeably, the survey showed.
The Ifo business climate index is based on approximately 9,000 monthly responses from businesses in manufacturing, the service sector, trade, and construction.
“The German businesses are hoping for a recovery,” said Ifo’s president Clemens Fuest.
In the first quarter, the economy is expected to grow by 0.2%, said Klaus Wohlrabe, head of surveys at Ifo. “The German economy breathes a sigh of relief,” he told Reuters.
Germany’s gross domestic product fell by 0.2% in the fourth quarter.
Industry’s export expectations have risen and some hope is returning, Wohlrabe said, with businesses hoping a new government would bring greater stability and more investments.
Germany’s parliament approved plans for a massive spending surge last week, throwing off decades of fiscal conservatism in hopes of reviving economic growth and scaling up military spending for a new era of European collective defence.
“The prospect of fiscal stimulus is boosting sentiment in Germany and outweighing concerns about U.S. tariffs for now,” said Franziska Palmas, senior Europe economist at Capital Economics.
But while economic activity may no longer be contracting, it is still quite weak, she added.
Business activity in Germany’s private sector rose at the fastest rate for 10 months in March, with the first increase in manufacturing production for almost two years, the composite Purchasing Managers’ Index showed on Monday.
The German economy will soon experience a cyclical upswing but how long it will last and whether it becomes a structural recovery will depend on whether coalition talks lead to real structural reforms, said Carsten Brzeski, global head of macro at ING.
“This is not yet an unchained economy but spring fever as a result of the announced fiscal package seems to be in the air,” Brzeski said.
(Additional reporting by Rachel More, editing by Thomas Seythal and Ros Russell)
