German Ifo Business Sentiment At Record High; GDP Growth Improves

(RTTNews) - A record high business sentiment, a one-year high economic growth and a six-year high growth in the private sector signal strong positive momentum of the German economy, the biggest in the euro area.

As companies were upbeat about their future amid the improving current situation, the business sentiment index strengthened to a record high 114.6 from a revised 113.0 in April, the Munich-based Ifo institute reported Tuesday.

Ifo business confidence score reached its highest level on record since 1991. The reading was expected to rise marginally to 113.1 from April's initial estimate of 112.9.

The largest euro area economy expanded 0.6 percent in the first quarter, the most in a year on spending, investment and exports, a detailed report from Destatis confirmed earlier in the day.

Elsewhere, the purchasing managers' survey suggested that the German private sector grew at the sharpest rate in over six years in May, driven by manufacturing activity.

Today's strong German data add to the evidence that, not only the German economy, but the entire Eurozone economy could become the positive growth surprise of 2017, Carsten Brzeski, an ING DiBa economist, said.

The development in the business confidence index combined with other key economic indicators, points to economic growth of 0.6 percent in the second quarter, Ifo said. Economic activity in Germany remains very brisk, the think tank added.

The Ifo current conditions indicator came in at 123.2, up from 121.4 in April. This was also above the forecast of 121.0.

Likewise, the expectations index improved to 106.5 in May from 105.2 in April. Economists had forecast the index to rise moderately to 105.4.

Aided by the European Central Bank's relaxed monetary policy stance and a recovery in Western Europe, the German economy is going full steam ahead, Joerg Kraemer, a Commerzbank economist, said. For 2017 overall, the economist still expects 1.6 percent growth.

In its monthly report released on Monday, the Bundesbank said that the growth is set to continue in the spring.

According to Destatis data, GDP growth accelerated from 0.4 percent expansion seen in the fourth quarter.

On a yearly basis, the calendar-adjusted growth eased slightly to 1.7 percent from 1.8 percent a quarter ago. Annual growth figure also matched the provisional estimate published on May 12.

The expenditure-side breakdown of GDP revealed that household spending grew 0.3 percent, slightly faster than the 0.2 percent expansion a quarter ago. Likewise, growth in government spending improved to 0.4 percent from 0.3 percent.

Gross capital formation declined 0.5 percent, in contrast to the 2.5 percent growth in the fourth quarter.

Exports advanced 1.3 percent, but slower than the 1.7 percent expansion in the previous quarter. Similarly, imports climbed only 0.4 percent after rising 2.5 percent.

PMI survey showed that the pace of private sector expansion accelerated for the third time in four months to a 73-month record in May, reflecting the sharpest increase in manufacturing output since April 2011, IHS Markit said.

The composite output index rose unexpectedly to a 73-month high of 57.3 in May from 56.7 in April. The expected reading was 56.6.

The flash manufacturing PMI climbed to 59.4, while it was forecast to drop to 58.0 from 58.2 in April. The indicator signaled the strongest performance since April 2011.

On the other hand, the services PMI declined to 55.2 in May from 55.4 in April. Economists had forecast the indicator to rise marginally to 55.5.

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