German Confidence Shrugs Off Imminent Sales Tax Rise

Seems sales tax increase won't put brakes on recovery.

Business confidence in Germany remains robust, a key survey showed on Oct. 25, on optimism that an imminent rise in sales tax will not put the brakes on recovery in the eurozone's biggest economy.

In Germany, the widely watched business climate index, calculated each month by the Munich-based economic research institute Ifo, rose to 105.3 points in October from 104.9 points in September. The increase took analysts by surprise: consensus forecasts had been penciling in a slight decrease in the barometer this month. At its current level, the index is not far off the 15-year high of 106.8 points topped in June.

"Companies continue to assess their current situation positively and, for the first time in three months, they also estimate the outlook for the next six months to be better," said Ifo president Hans-Werner Sinn. "The results of the survey suggest that the economic upturn will continue next year in spite of the planned rise in VAT."

Business confidence was also up in France, a separate survey showed, suggesting that the eurozone economy as a whole will grow at an above-trend pace at least until the end of the year, analysts said. In France, the Insee institute's business confidence indicator also defied expectations, rising to 108 points from a revised reading of 107 points the month before.

But in Italy and in Belgian, confidence was down slightly, even if the declines were in line with expectations.

Copyright Agence France-Presse, 2006

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