2014.04.2408:46:00UTC+00German Ifo Business Morale Gains Strength Unexpectedly

Sentiment among German firms improved unexpectedly in April as businesses were more confident about their future activities, a closely watched survey showed Thursday. Even the risks emanating from the Ukraine crisis left business morale untouched.

Business confidence rose to 111.2 in April from 110.7 in March, a survey conducted by the Munich-based Ifo Institute, among 7,000 firms, revealed. The index was forecast to fall to 110.4.

Similarly, the current conditions index improved to 115.3 from 115.2 in March. But, that was below the expected score of 115.6.

Expectations among businesses strengthened unexpectedly to 107.3 from 106.4. Economists had forecast the index to fall moderately to 105.8.

Business climate in manufacturing hit its highest level since July 2011. While confidence in wholesaling improved significantly, sentiment in retailing edged downwards in April.

In construction, confidence brightened marginally and that in the service sector recovered after two consecutive declines.

ING Bank NV Economist Carsten Brzeski said despite today's surprisingly strong Ifo and the expected growth acceleration of the German economy in the first quarter, it would be foolish to turn a blind eye to possible downside risks for the economy.

With the Ukraine crisis, Chinese uncertainties and emerging markets slowing down, more and more gusts of wind, particularly from the East, could easily disturb the current spring fever on the Eurozone's island of happiness, said Carsten Brzeski.

The finance ministry early this week said the largest Eurozone economy will register strong growth in the first quarter on positive developments in industrial and construction activities. However, growth will be weaker in the second quarter after gaining strength from the mild weather in the first quarter, it said.

Jennifer McKeown at Capital Economics expects German GDP growth of about 1.5 percent in 2014 and 2 percent in 2015.

Although this would be a reasonable performance it will not be strong enough to drive a rapid recovery across the euro-zone as a whole or to eradicate the threat of deflation, the economist said.