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Last Updated: Tuesday, 27 June 2006, 10:09 GMT 11:09 UK
German firms hit confidence high
German carworker
Despite better sentiment, analysts are worried about future figures
German business confidence has climbed unexpectedly during June, hitting its highest level in 15 years.

Research institute Ifo said its business confidence index rose to 106.8 points in June, from 105.7 in May.

Analysts attributed the rise, which confounded expectations, to strong exports and the effects of the football World Cup being held in Germany.

However, some remain concerned that the football-linked "feel-good factor" could prove short-lived.

"We think that the World Cup has had a positive influence on the mood of the companies," said Sebastian Wanke, an economist at Dekabank.

"The actual litmus test for the Ifo index will be in July when the World Cup is over and people focus on the beginning of next year."

Economic wobbles

Ralph Solveen of Commerzbank said he had not expected the Ifo's measure of current sentiment to rise so clearly.

"Most of all it's the manufacturing industry that is driving business," he said.

"This shows that it's going very well there, and the global economy is lifting the business."

We will have a very strong second quarter from a growth perspective... But after that the economic growth figures will weaken
Gerd Hassel, BHF-BANK

During recent weeks, question marks have been raised over the state of the global economy as central banks look to control an accelerating rate of inflation.

Germany has not escaped the concerns, and despite the strong sentiment figures analysts still expect economic growth will slow in coming months.

"We will have a very strong second quarter from a growth perspective, said Gerd Hassel of BHF-BANK. "But after that the economic growth figures will weaken."

Borrowing costs

The European Central Bank (ECB) is responsible for setting interest rates in Germany, the region's largest economy, and many analysts are predicting that it will have to raise its benchmark rate from its current 2.75% level.

A report on Monday showed that Germany's rate of inflation accelerated in June, pushed higher by food and fuel costs. According to the Federal Statistical Office, consumer prices rose by 2% in June.

"When taken together with the more hawkish tone of comments from the ECB this week, this morning's data leaves us confident that the ECB will hike interest rates three more times this year to 3.5%," Capital Economics said.

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