German Business Optimism On The Rise

More upbeat survey points to accelerating growth in second half. World Cup offers temporary lift, and construction, services industries planning greater investment.

FRANKFURT, Germany (AP) - German businesses are more optimistic about growth prospects for Europe's biggest economy, according to a survey released Monday by a business group.

The survey of more than 21,000 companies - ranging from small retail shops to major corporations - by the German Chamber of Commerce found an upbeat assessment going into the summer and more optimism than the last time they were polled in February.

''Companies are as upbeat as they have last been during the boom years of reunification, with the exception of 1999 and 2000,'' the survey by DIHK said. ''The tough restructuring course that companies had to pursue is obviously paying off.''

The DIW economic research institute also said Monday it expects growth to accelerate in the second half of 2006 because of more foreign demand and increased production.

The Berlin-based institute forecast second-quarter gross domestic product growth of 0.6 percent, adjusted for seasonal effects and the number of working days. That was better than the 0.4 percent growth during the first quarter.

''Foreign demand remains a growth pillar for the economy,'' DIW said. ''The stable development of industrial orders give reason to expect continuing overall growth in the second quarter.''

The Chamber of Commerce's report added that the business' outlook gave ''reason for optimism, at least until the end of the year.'' It also said that, based on its previous surveys, companies appeared to be hiring again.

The agency did not say if the hiring was the result of the World Cup, which has created an estimated 50,000 temporary jobs through July 9. Unemployment in Germany has been high in the past several months, but dipped to 10.8 percent last month.

With current conditions and the business outlook more upbeat, 16 percent of the companies surveyed plan to increase hiring, compared with 14 percent in February, while 67 percent said they would keep their staff from 66 percent previously. Only 17 percent planned to cut staff, less than the 20 percent who said the same in February.

Still, structural problems on the labor market stand in the way of a stronger employment growth, DIHK warned.

What's more, the government's planned increase in the value added tax from 16 percent to 19 percent next year is already preventing companies from hiring, the report said.

''Companies' willingness to hire is lower the more uncertain companies are regarding the duration of higher demand,'' it added.

Of the companies surveyed, 34 percent said they saw improvement in their business in coming months, compared to 31 percent in February, while 13 percent said they felt the economic situation in Germany would get worse, down from 15 percent in the February survey.

Fifty-three percent said the economic outlook would remain unchanged, while 54 percent said the same thing in February's survey.

The export outlook remained positive, however, with 43 percent of the companies surveyed saying that they expected exports to increase, compared to 47 percent in February, while 51 percent saw foreign trade staying unchanged from the 46 percent in the prior survey. Just 6 percent said exports would decline, compared with 7 percent earlier this year.

The improved outlook comes as not only export companies but also the services and construction sectors plan to invest more.

''As a result the domestic economy is supporting investment activities, which so far had been mainly a result of exports,'' according to the DIHK.

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