Business confidence hits 8-month high

German business confidence rose to its highest level in eight months in March, as optimism continues to grow about the outlook for Europe's biggest economy, the Ifo economic institute said on Wednesday.

The Ifo institute's closely watched business climate index rose to 107.9 points this month, its highest level since July 2014, the think tank said in a statement.

It was the fifth consecutive monthly increase and was better than analysts had been expecting.

"Companies were more satisfied with their current business situation. They also expressed far greater optimism about future business developments," said Ifo president Hans-Werner Sinn. "The German economy is continuing to expand."

Dr. Jens Boysen-Hogrefe deputy director of the forecasting centre at the Kiel Institute for the World Economy told The Local that “the export economy is seeing a gentle improvement, especially due to the recovery in the euro area and the dip in the exchange rate vis a vis the US dollar.” 

For Germany's heavily export-oriented economy this is a key factor in improving business confidence, he said.

Boysen-Hogrefe also named low interest rates and the sustained fall in the price of oil as contributors to the more optimistic outlook.

But he warned against over-optimism, cautioning that “while the billed boom sounds good” it could lead to an “overheating” of the German economy and “threatens to bring a recession in its wake.”

The expert also expressed concern that the minimum wage and rises in state pensions enacted in the economic good times will become a burden when boom turns to bust.

Ifo calculates its headline index on the basis of companies' assessments of current business and the outlook for the next six months.

The sub-index measuring current business rose to 112.0 points from 111.3 points, while the outlook sub-index increased by 1.4 points to 103.9 points, the institute said.

Analysts said the Ifo reading confirms that the German economy is already shrugging off the geopolitical uncertainty that depressed sentiment last month.

"Companies are shaking off worries about Russia and Greece, which had been weighing on optimism in February," said Berenberg Bank economist Christian Schulz.

"Further improvements in Germany's momentum are ahead. The economic tailwinds of cheap oil and a weaker euro take time to feed through to companies' and households' purchasing and investment decisions," Schulz said.

The Ifo index is still a long way from reflecting a real "boom", "but the upswing is broad-based," the expert noted.

Natixis economist Johannes Gareis similarly believed that the Ifo data "add to the bright picture of Germany's economic outlook."

German business confidence "has clearly left behind its lull in mid-2014, strengthening the case for optimism about Germany's growth prospects," he said.

Postbank economist Heinrich Bayer said the rise in the Ifo index offered a "clear signal that the economy upturn will continue in the coming two quarters."

"Optimism has returned to the German economy," concurred ING DiBa economist Carsten Brzeski.

"Strong growth in the fourth quarter of 2014, combined with low energy prices and the weak euro exchange rate, have boosted confidence in the economy."

The European Central Bank's bond purchase programme was also a factor driving optimism, Brzeski said.

"The economy is like a sailboat which only needs to hoist the sail and lean back to relax. Strong tailwinds could bring the strongest economic performance since 2011," he said.

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Sweden’s new right-wing govt slashes development aid

Sweden, one of the world's biggest international donors, is planning drastic aid cuts in the coming years, the country's new right-wing government said in its budget bill presented on Tuesday.

Sweden's new right-wing govt slashes development aid

Prime Minister Ulf Kristersson’s government said it planned to reduce the country’s international aid by 7.3 billion kronor ($673 million) in 2023, and by another 2.2 billion kronor in 2024.

That is around a 15-percent reduction from what had been planned by the previous left-wing government and means Sweden will abandon its foreign aid target of 1 percent of gross national income.

International aid for refugees will be capped at a maximum of eight percent of its aid, and will also be reduced.

According to the specialised site Donor Tracker, Sweden was the world’s eighth-biggest international aid donor in terms of absolute value last year, and the third-biggest in proportion to the size of its economy, donating 0.92 percent of its gross national income, behind Luxembourg and Norway.

The new government, which is backed for the first time by the anti-immigration Sweden Democrats, had announced in its government programme last month that it would be cutting foreign aid.

Since 1975, Stockholm has gone further than the UN’s recommendation of donating at least 0.7 percent of its wealth to development aid.

Despite its growth forecast being revised downwards — the economy is expected to shrink by 0.4 percent next year and grow by 2 percent in 2024 — the 2023 budget forecasts a surplus of 0.7 percent of gross domestic product.

It calls for an additional 40 billion kronor in spending, with rising envelopes for crime fighting and the building of new nuclear reactors, as well as a reduction in taxes on petrol and an increase in the defence budget.

The new government is a minority coalition made up of Kristersson’s conservative Moderates, the Christian Democrats and the Liberal party, backed in parliament by their key ally the Sweden Democrats to give them a majority.