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German mood bright as VAT fears melt
27 March 2007
RTE Business
kurzstrassenfront  

A survey has shown that German business morale unexpectedly rose in March as the impact of a new year rise in value-added tax appeared to fade, reinforcing expectations the European Central Bank would raise interest rates further.

The widely watched business climate index, calculated monthly by the Munich-based economic research institute Ifo, has shown that business confidence in March headed back towards the 16-year high it hit in December.
The index rose to 107.7 points in March from 107 in February, taking analysts by surprise. Most had expected another fall.

The declines in the past two months had been largely a result of concerns about the possible negative effects of the three percentage-point rise in VAT which came into effect at the beginning of the year.

Ifo president Hans-Werner Sinn said the upturn in the euro zone's biggest economy was 'strong and robust'.

The upbeat business climate index makes it more likely that the economy will continue to progress well, which gives the European Central Bank little reason to change its optimistic view of the economy, making it more likely the bank will raise interest rates again in the near future.

The ECB has lifted its benchmark rate to 3.75% and most analysts expect a 4% rate by mid year, although financial markets are less certain due to a US economic slowdown.

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