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German business sentiment hits 15-year high

BERLIN – German business sentiment rose to its highest level in almost 15 years in March, a survey showed Tuesday in the latest sign of recovery in Europe’s largest economy.Munich’s Ifo institute reported that its business sentiment index rose to 105.4 from 103.4 in February. It was the strongest reading since April 1991, during Germany’s post-reunification boom.Analysts had expected the closely watched index to decline to 102.9 rather than post a fourth consecutive monthly increase.”This is an indication that the economic recovery has stabilized further,” said Ifo President Hans-Werner Sinn.That prospect, along with reports Tuesday showing Italian business confidence at its highest level in more than five years and an expanding money supply in the euro zone, fanned speculation that the European Central Bank will raise interest rates against as soon as May.The 12-nation currency got an immediate boost, rising to $1.2102 by Tuesday afternoon from its session low of $1.1993 and from $1.2012 in New York late Monday.Germany has suffered from years of slow growth, causing chronically high unemployment and a cash crunch for the country’s generous welfare state while holding back growth across the continent.However, an enduring boom in exports and positive signs from the slumbering domestic economy have economists anticipating a modest recovery.The Kiel-based IfW think tank, for instance, is predicting growth of 2.1 percent this year, among the most optimistic. The government’s official forecast is 1.4 percent in 2006. The economy expanded by 0.9 percent last year.Ifo, which surveys about 7,000 managers at German companies every month, said the gain in its index was broad-based.Its subindex measuring executives’ assessment of their current business situation jumped to 105.1 in March from 101.9 the month before. Their expectations for the first six months – the second component in the overall index – also gained, rising to 105.7 from 104.9.The government said the figures confirmed that the recovery was strengthening and that its reforms, which include plans to cut business taxes and ease labor market regulations, would underpin it.”More and more areas of the German economy are profiting from the good export business. This shows that the government’s course of continuous reform is the right one,” Economy Minister Michael Glos said.”With this policy, we are guaranteeing that the economic recovery is not a flash in the pan and that we move onto a faster growth path,” he said.However, the main opposition Free Democrats say the government’s plans are timid and contradictory.German lawmakers began debate Tuesday on the proposed 2006 budget, which includes plans to hike value-added taxes next year in order to reduce the budget deficit.In Italy, the euro zone’s third-largest economy, business confidence rose in March as companies were more optimistic about foreign orders and the overall production outlook, the ISAE institute said. Its index rose from 92.7 in February to 94.2 in March, the highest level since February 2001.The ECB said Tuesday that the annual rate of growth of M3, the broadest measure of the amount of money available in the euro zone, surged to 8 percent in February, fueled by robust demand for private credit.The bank, which has said that the continent’s economy is strengthening and expressed concern about a housing price boom in countries including France and Spain, last raised its main interest rate to 2.5 percent on March 2.


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