German business morale rose in November to the highest level since summer 2014, shrugging off an economic slowdown in China, the Volkswagen emissions scandal and the Islamist attacks in Paris. The unexpectedly strong business climate reading by the Ifo economic institute came after data showed that rising private consumption and higher state spending on refugees more than compensated for weakness in foreign trade in the third quarter.
"The German economy remains unaffected by growing uncertainty worldwide. Not even the Paris attacks had a negative impact on survey data," the Munich-based Ifo institute said. Data from the Federal Statistics Office earlier showed that strong domestic demand helped the economy to grow at a modest, albeit slower, pace of 0.3 percent between July and September.
Ifo's business climate index, based on a monthly survey of some 7,000 firms, jumped to 109.0 from 108.2 in October. It was the strongest reading since June 2014 and beat the Reuters consensus forecast for a steady reading. A separate index measuring corporate expectations over a half-year horizon rose to 104.7, suggesting many firms believe they can cope with the economic headwinds.
"Neither the VW emissions scandal, nor the refugee crisis, nor the attacks in Paris are scratching the mood of German companies," DekaBank economist Andreas Scheuerle said, adding that German business morale was like a "teflon-coated pan". A sub-index for the automotive sector continued to rise despite the VW emissions scandal. "The German economy appears unaffected because the euro zone and United States are performing well," Ifo economist Klaus Wohlrabe told Reuters.