German business survey hits fresh high

The benchmark IFO business climate survey hit a 20-year high today as business in Germany continues improving.

It jumped to 110.3 in January, beating expectations of 41 executives polled by Bloomberg that it would stay at its December level of 109.9.

The reading is produced by Munich’s IFO Institute after surveying 7,000 business executives.

Analysts are already upgrading this year’s GDP expectations as German businesses benefit from a cheap euro and low interest rates. Citigroup recently raised its GDP expectations from 2.6% to 3%.

Germany’s economy grew by 3.6% in 2010 – another 20-year high – boosted by mild net growth in exports, domestic private and public sector consumption, and record low unemployment.

Last year’s renewed year-on-year, price-adjusted growth easily outpaced most years since 2000, rivaled only by 2000 (3.2%) and by 2006 (3.4%).

The Dax index was up 0.4% in early trading today.

Rob Smith, investment manager of the Baring German Growth trust, said exports had risen 25% in recent months, near 2008 peak levels again.

Low real wage growth and consumer spending growth improved Germany’s competitiveness.

“A virtuous cycle has now developed in the German economy, whereby consumer spending is helping to boost profits growth, which is then recycled, in part, to consumers again through wage growth.”

The removal, in May, of the need for many Eastern European workers to get work permits for Germany should boost productivity and help alleviate effects of Germany’s ageing population, in Smith’s view.

The portfolio has a mixture of large exporters, but also companies benefiting from domestic spending.

Hugh Cuthbert, manager of the Continental Europe fund at Edinburgh’s SVM Asset Management, also added domestic consumption stocks last year.

“Investors know companies like Siemens export to the Far East, but they do not then go down the line to the impact of that in terms of German consumers.

“The consumer cannot fight against the trend, and is starting to spend.”

Cuthbert cut companies like Siemens in his portfolio last year, boosting others like landlord Tag Immobilien, which could benefit if wealthy Germans move to larger properties.

David Walker

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