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Last Updated: Monday, 26 May, 2003, 11:33 GMT 12:33 UK
Germany eyes economic upturn
German construction worker
Confidence builds across the economy
Business confidence in Germany rose unexpectedly in May, raising hopes of a better second half of the year for the economy.

The industrial confidence index by the economics research institute Ifo rose to 87.6 from 86.6 in April.

"Based on the new Ifo figures, the chances of an upturn in the second half of the year have improved," Ifo President Hans-Werner Sinn said in a statement.

The index is now at its highest level since October 2002, after falling unexpectedly in April.

Three months of the Ifo index either growing or contracting is the standard for indicating a trend, leaving another two months before claims of a recovery can be supported.

'Positive surprise'

The rise comes despite poor recent economic figures and as the euro strengthens, making exports less competitive.

"This was a positive surprise," Ifo head of business surveys Gernot Nerb told BBC Radio's World Business Report.

The size of the jump was unexpected by analysts who had forecast the index to be flat or at best only slightly higher in May.

Mr Nerb said that Ifo's latest information suggested that the stronger euro has helped the retail sector by cheapening imports and boosting consumer spending.

Falling petrol prices since the end of the Iraq war have also put spare change in consumers pockets, he said.

Despite the strong euro, firms in Germany's key export manufacturing sector are becoming more optimistic because prospects for the global economy appear to be improving, he said.

"Here they expect there might be some pick up, which of course would benefit German exports," said Mr Nerb.

Weak year

Germany's economy shrank by 0.2% in the first quarter of this year, marking the third year of near zero growth.

Some economists have warned that Germany is already in recession again.

But under the commonly accepted definition of recession - two consecutive quarters of negative growth - Germany is on the brink of, but not yet back in, recession.

The Ifo index is based on a survey of 7,000 west German business leaders in the manufacturing and construction industry and wholesale and retail traders.

Ifo economist Gernot Nerb
"This was a positive surprise..."

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