BERLIN, Jan 27 - German business confidence rose more than expected in January as optimism about rising global demand outweighed the potentially negative impact of the strong euro, the monthly Ifo survey showed on Tuesday. The influential Ifo economic research institute, which polls about 7,000 firms each month, said January's ninth straight improvement in its western German business climate index was "solely due to a more favourable assessment of the current business situation." The Munich-based think tank said the index, one of Europe's most closely watched gauges of economic activity, rose to 97.4, the highest since January 2001, from an upwardly revised 96.9 in December. Economists polled by last week had predicted an increase to 97.0 . The index peaked at an all-time high of 107.4 in November 1990, shortly after German reunification. "Surprisingly, the higher euro exchange rate has not taken its toll on business sentiment," said Andreas Rees, an economist at HVB Group in Munich.
Ifo President Hans-Werner Sinn said: "The business climate improvement was largely boosted by the manufacturing sector but also, to a lesser extent, by the construction industry." "The renewed improvement in the business climate index in western and in eastern Germany supports the forecast of the Ifo institute that the economic recovery will continue," he added. Ifo said on Tuesday companies' assessment of current conditions rose to 84.3, from 83.3 in December. Future expectations held at December's upwardly revised level of 111.2. Europe's common currency has strengthened about 15 percent against the U.S. dollar in the past year, a surge that has eroded euro-zone companies' profits abroad and threatened a recovery in the 12-nation bloc. The euro on Tuesday was trading at around $1.2480, below a record high of almost $1.29 reached earlier this month. Juergen Hambrecht, chief executive of Ludwigshafen-based BASF AG , the world's top chemicals company by sales, said on Monday he expects currency effects to lop as much as 500 million euros off 2003 sales. Luxury carmaker BMW posted a slip in 2003 revenues on Tuesday as the weak dollar took its toll on revenues. However, stronger demand from abroad for euro-region goods as the global economy accelerates appears to be compensating for the currency's strength and keeping a recovery on track. Bernhard Schreier, chief executive officer of Heidelberger Druckmaschinen AG , said on Tuesday the world's biggest maker of printing machinery returned to operating profit in the third quarter. "We believe that, after three years of strongly negative trends, we are beginning to see the turnaround," Schreier said. "Slight increases in advertising budgets give reason for hope."
Germany's benchmark DAX index of leading German stocks has risen by about a fifth in the past six months, suggesting investors are upbeat about a recovery. The institute's index of business confidence for eastern Germany rose to 105.4, from an upwardly revised 104.7, as expectations for the future improved and the assessment of current conditions deteriorated.//www.reuters.com