German Ifo hits new high in November

German business confidence unexpectedly improved in November, according to a widely-followed survey released on Friday.

The Ifo business climate index rose to a new record high of 117.5 from 116.8 in October, beating expectations for a reading of 116.6. Meanwhile, the current assessment index printed at 124.4 from 124.8 the month before, missing forecasts of 125.0.

The expectations index rose to 111.0 in November from 109.2 in October, comfortably beating expectations for a reading of 108.9.

The sub-index for manufacturing rose to 33.1 from 31.1, while the index for wholesaling increased to 25.0 from 18.0. However, the index for construction fell to 17.2 from 20.2 and the index retailing declined to 13.0 from 16.1.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said: "A positive spread between expectations and current assessment is a positive signal from these data. The headline and expectations indices indicate that the impressive momentum in the German economy will be sustained in Q4, and that domestic demand will rebound smartly following the slowdown in Q3.

"Across industries, the construction sentiment index dipped, but continues to signal strong growth, while the manufacturing gauge soared. The retail sentiment index also slid, but only partially reversing the jump in October."

Capital Economics said November’s rise in German Ifo business sentiment to a new record high suggests that businesses are unfazed by the uncertain political backdrop.

"Admittedly, the Ifo has overstated economic conditions in recent quarters, so we don’t think that German GDP growth will be quite that strong. Instead, we suspect that quarterly growth in Q4 will be closer to the 0.6% implied by yesterday’s PMI, which would be consistent with annual growth of about 3%. Nonetheless, the big picture is that both the Ifo and the PMI are painting a very positive picture of the economy.

"While this month’s survey period began before the breakdown of German coalition negotiations at the weekend, we doubt that this would have affected sentiment to a large extent given that the economy is firing on all cylinders. Accordingly, we see the German economy continuing to perform very well in the coming months, even if voters have to head to the polls again."