German business morale brightens despite Trump, French vote risks

By Michael Nienaber BERLIN (Reuters) - German business morale was surprisingly buoyant this month, a survey showed on Wednesday, supporting expectations of a robust start to 2017 in Germany and the euro zone despite worries about U.S. trade policies, Brexit and the French election. The sentiment survey, published by the Ifo institute on Wednesday, was another sign that growth in the euro zone is picking up. On Tuesday, preliminary purchasing manager surveys for Germany, France and the whole 19-member euro zone were nearly all better than expected. There is a relatively strong correlation between German economic growth and that of the euro zone. "The mood defies the risks posed by Trump and the French presidential elections - especially because consumption is strong," Commerzbank chief economist Joerg Kraemer said. The United States has become the biggest client for "Made in Germany" products, taking nearly 10 percent of overall exports and propelling Germany's record-high trade surplus. But U.S. President Donald Trump has threatened German carmakers with a border tax of 35 percent on imported vehicles imported, arguing that such a step would make them create more jobs on American soil. In France, Germany's second-most important export destination, the outcome of elections has unnerved investors as anti-euro, far-right leader Marine Le Pen has narrowed the gap with centrist opponents in the race for the presidency. Bankhaus Lampe economist Alexander Krueger said Trump's protectionist plans did not seem to unsettle German companies for now and that the Ifo figures pointed to strong economic growth in the first quarter. Munich-based Ifo said its business climate index, based on a monthly survey of some 7,000 companies, rose to 111.0 from an upwardly revised reading of 109.9 in January. That beat the Reuters consensus forecast for a dip to 109.6. HUMMING FACTORIES That assessment of the current business situation reached its highest level since August 2011 while companies also expressed greater optimism about the months ahead. Morale improved in manufacturing and wholesale whereas construction and retailing managers were less upbeat. Ifo economist Klaus Wohlrabe said neither Trump's policies nor Britain's planned departure from the European Union - Brexit - were hurting the German economy or the mood in corporate boardrooms. "The German economy is in surprisingly strong shape in politically uncertain times," he said. Ifo's figures came after the German purchasing managers survey showed that private-sector growth picked up in February to its highest level in nearly three years, driven by humming factories. In addition, reports earlier this month showed industrial orders posted their biggest monthly increase in around 2 1/2 years, driven mainly by higher demand at home and abroad for goods needed in production. The German economy grew by 1.9 percent in 2016, the strongest rate in half a decade, driven by soaring private consumption, increased state spending on roads and refugees and rising investment in housing. For this year, the German government forecasts a weaker growth rate of 1.4 percent because there will be fewer workdays and exports are likely to rise less strongly than imports. The Bundesbank said in its latest monthly report that the German economy will stay on a strong footing in the coming months thanks to high industrial and construction activity. (Editing by Paul Carrel/Jeremy Gaunt)