Positive sentiment

The Munich-based Ifo research institute reported that its business climate index gained 0.8 points from August, climbing to 91.3.

Based on a survey of 7,000 executives, business sentiment was measured at its highest level since September 2008, when the collapse of American investment bank Lehman Brothers plunged the global financial system into crisis.

“Appraisals of the business situation and outlook have improved,” Ifo president Hans-Werner Sinn said in a statement on Thursday.

"However, by far the greater number of firms still assesses the business situation as poor," he added.

Mixed sentiment across sectors

A statement on Ifo's website said the mood in Germany's manufacturing sector had recovered somewhat.

“Manufacturing firms no longer regard their present business conditions quite so negatively as in the previous month. They also anticipate a somewhat more favourable course of business in the coming half year,” the institute said.

“With regard to exports, their scepticism has subsided,” it said, adding, however, that more firms were planning job cuts.

Ifo data also pointed to an improvement in the wholesale and retail sectors. “In both distribution sectors, the survey participants are less critical regarding business developments in the coming half-year.”

The outlook for the construction sector, however, has clouded over somewhat. Survey respondents assessed their business prospects for the next six months with more scepticism than they did in August.

Slow pace of recovery

Carsten Brzeski, senior economist at ING bank, welcomed the latest Ifo data, saying that “although the speed of the improvement is slowing, for the time being, the only way is up.”

"Multiple tailwinds should have brought a warm 'Indian Summer' to Germany, with another growth surprise in the third quarter," he added.

Last week, the September survey of German finanical desision-makers by the Mannheim-based Center for European Economic Research (ZEW) recorded a slight increase in market confidence, putting confidence at its highest level since April 2006.

“The economic expectations for Germany are consistent with the picture that the German economy is recovering but at a slow pace," ZEW president Wolfgang Franz said.

Economic mood favors Merkel

Observers say that with German elections scheduled on Sunday, the increasingly positive economic mood is likely to work in favor of Chancellor Angela Merkel, whose Christian Democrats are leading in opinion polls.

Merkel has said that the worst is probably over for Germany but that the road to recovery will be a bumpy one.

Official data shows the German economy climbed out of a historic recession in the second quarter of 2009, registering growth of 0.3 percent from the first three months of the year.

The optimism in Germany has been reflected across the eurozone in September, as private sector activity gained momentum in the 16 nations that use the euro. The bulk of the growth can be traced to the services sector's return to positive territory, according to data published on Wednesday by the Mirket research group.

rb/AFP/dpa/Reuters
Editor: Sam Edmonds