German business confidence improves for 4th straight month

The buildings of the banking district are pictured in Frankfurt, Germany, early Tuesday, Feb. 21, 2023. (AP Photo/Michael Probst)

BERLIN (AP) — German business confidence has strengthened for a fourth consecutive month as managers look past current problems to take a more optimistic view of the months ahead, a closely watched survey showed Wednesday.

The Ifo institute said its monthly confidence index rose to 91.1 points in February from 90.1 last month. That was due entirely to a clear improvement in companies' outlook for the next six months, because their assessment of the situation now worsened slightly.

The survey has shown confidence rising since November, but it is well below its level of 98.6 last February, before Russia launched its full-scale invasion of Ukraine.

Ifo said “the German economy is gradually working its way out of a period of weakness.” Europe's biggest economy shrank by 0.2% in last year's fourth quarter compared with the previous three-month period, largely because of a decline in consumer spending.

The Ifo survey is based on responses from about 9,000 companies in a broad range of sectors.

The fact that the improved outlook is still based solely on forward-looking expectations reinforces the view that “Germany’s economy will only start to recover during the second quarter,” Timo Klein, principal economist at S&P Global Market Intelligence in Frankfurt, said in a research note.

"However, the broad-based nature of improving expectations across all relevant sectors reassures that economic activity will indeed pick up soon, enabled by reduced worries about energy security and prices,” he added.

Inflation has dogged Germany in recent months as it has other countries. The Federal Statistical Office said Wednesday that the annual inflation rate rebounded to 8.7% in January after dropping to 8.1% in December, stemming from the state taking on the cost of natural gas customers’ monthly bills in December as part of a massive government energy relief package.

That was meant to ease the pain of natural gas prices that surged following the invasion of Ukraine and the end of Russia's gas supplies to Germany.

A feared shortage of gas used to heat homes, generate electricity and power industry hasn't materialized, however. Germany's gas storage facilities are well-stocked, and the country has opened its first liquefied natural gas terminals.