Surprise rise in German confidence
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BERLIN, Germany (CNN) -- German business confidence -- the country's most closely-watched barometer -- rose strongly ahead of expectations pointing to an economic recovery, the Ifo research institute said on Tuesday.
The business climate index, which surveys 7,000 of the country's businesses, rose to 88.9 in February from 87.4 in January – the second monthly rise. Economist polled by Reuters had been expecting the number to fall to 87.2.
"For Germany overall, the signs are pointing to a change for the better,'' Ifo President Hans-Werner Sinn said. But he cautioned the west German index needed to show three successive rises to give a true picture.
Economists welcomed the increase but concerns remain about the state of Europe's biggest economy. Rising unemployment, tax increases and a war with Iraq could conspire to tip the economy into its second recession in two years.
European Central Bank President Wim Duisenberg lowered the bank's outlook for the euro zone economy and indicated it could cut interest rates soon. The ECB's key interest rate stands at 2.75 percent and will be reviewed at its monetary policy meeting on March 6.
Financial markets already feel the ECB is warming towards another rate cut, possibly by as much as 0.5 percentage points. Previously the bank had said it expected growth to return to potential, or between 2.0 and 2.5 percent, by the end of this year. Duisenberg told the European Parliament last week he could no longer put a date on the recovery.
Euro zone hopes for a recovery this year have been dimmed by a looming war with Iraq which is sapping business confidence and consumer spending. Germany's economy slid into recession in the second half of 2001 and has struggled to crawl out of the mire.
"We still expect Germany to fall into a slight recession in the first quarter," Lothar Hessler, economist at HSBC Trinkaus & Burkhardt, told Reuters.
"After a slight contraction in the final quarter of last year GDP is likely to have shrunk about 0.1 percent in the first quarter. So there is still much to suggest a half-point ECB interest rate cut on March 6."
