Employees work on the automobile diesel engine common rail pump production line at the Robert Bosch GmbH digital factory in Stuttgart, Germany. (Photographer: Alex Kraus/Bloomberg)

German Business Confidence Climbs to Highest Since July 2011

(Bloomberg) -- German business sentiment rose to the strongest level in almost six years in a sign that the momentum in Europe’s largest economy is set to continue.

The Munich-based Ifo institute’s business climate index increased to 112.9 in April from a revised 112.4 in March. That compares with a median estimate of 112.4 in a Bloomberg survey of economists.

German Business Confidence Climbs to Highest Since July 2011

The economy expanded at the fastest pace in five years in 2016, and reports since then have underlined expectations for a continued robust performance. The nation’s strength is key to the euro area’s recovery as the European Central Bank, which meets to set policy on Thursday, edges toward a decision on when to unwind its extraordinary stimulus.

“This may strengthen calls for monetary policy normalization from Germany,” Jennifer McKeown, chief European economist at Capital Economics in London, said in a note. “But with underlying inflation still weak in the euro zone as a whole, we doubt that the ECB will be swayed.”

Ifo’s measure of current economic conditions in Germany improved to 121.1 in April from a revised 119.5. A gauge of expectations fell to 105.2 from 105.7.

The Bundesbank said in its monthly report on Monday that sentiment in German manufacturing is “extraordinarily optimistic.” Still, a report on Friday showed private-sector output decelerated more than expected in April amid a softer expansion in the service sector.

Political risks have hung over the euro area in recent weeks, including the French presidential election in which the National Front’s Marine Le Pen campaigned on a pledge to withdraw from the single currency. Tensions eased after the first round on Sunday which showed that Le Pen will face a runoff against Emmanuel Macron, a centrist who is expected to defeat her. Germany holds elections in September.