Business confidence in Germany remained very strong in August and growth prospects were met with optimism by the country's business leaders according to the latest IFO survey.
Furthermore, Germany's consumers exhibited growing confidence in the second quarter, helping rebalance the eurozone's biggest economy away from its reliance on exports.
Business leaders remain optimistic
Although the August business confidence survey by the influential IFO Institute recorded a fractional decline in the headline index to 115.9 from 116 in the prior month, business leaders remained confident about the months ahead.
The small drop in the headline index – which still beat analysts’ expectations of a drop to 115.5 – was mainly due to a dip in the current assessment, which fell to 124.6 from 125.5.
But sentiment towards the business climate in the months ahead remained positive, as the expectations index rose to 107.9 from July's reading of 107.3.
In manufacturing, the IFO report recorded another record month, with companies expressing greater optimism about the short-term outlook.
Carsten Brzeski chief economist in Germany for ING said: "Unless German businesses are living in a kind of never-never land, today’s IFO index sends a clear signal that the German economy is powering ahead."
Updated information for Germany's second-quarter GDP provided no revisions to the 0.6% quarter-on-quarter pace of growth, but did indicate the rising influence of private consumption.
Indeed, German consumers recorded the joint-fastest rate of spending in nearly six years, which increased 0.8% quarter-on-quarter – faster than the 0.7% pace expected by economists.
Government spending also accelerated in the April-June period, rising 0.6% compared to a downwardly revised 0.2% rise in the first quarter.
"Leading indicators suggest that domestic demand will continue perform strongly in the second half of the year," said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics.
"But," he added, "we think the quarter-on-quarter run-rate in headline GDP growth will slow to 0.4-0.5% quarter-on-quarter. Full year growth of above 2%, however, is a very good bet.
After a couple of sessions of losses, the euro was flat against the dollar at $1.1799, but the single currency was 0.2% lower against the pound at $1.0867.
Stocks, however, were higher and the German Xetra Dax index climbed 0.3% to 12,216 in mid-morning trade.