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Economy in Brief

 Business Confidence Strengthens in the Euro Zone: German and Dutch Business Join the More Optimistic Groups 
by Louise Curley October 25, 2005

The healthy October rises in German and Dutch measures of business confidence following yesterday's report of continued rising business confidence in France are beginning to suggest a pickup in economic activity within the Euro Zone.

Although the pessimists still outweigh the optimists in Germany, the excess of pessimists declined in October to 3.5% from 8.9% in September according to the IFO measure of confidence. In the Netherlands, the optimists who had exceeded the pessimists in September by 1.3% increased their excess over the pessimists to 4.3% in October. The percent balances of the optimists over the pessimists for both German and Dutch business are shown in the first chart.

In appraising current economic conditions in Germany, businessmen have generally been more pessimistic than optimistic. In the entire history of the IFO confidence data, from January, 1991 to date, the only time when the balance of opinion on current conditions was positive was the period from January 1991 to March 1992 and the month of May 2000.In their expectations of conditions six month ahead, German businessmen have generally been more optimistic, but even here, the times when the optimists outweighed the pessimists have been few and the positive balances small. The second chart shows the history of the IFO's percent balances of opinion of German businessmen for current conditions and expectations of conditions six months ahead. Because of this apparent bias in the IFO data, it is more useful to look at the changes in the data rather than the absolute values.

In the third chart we show the year-to-year changes in the appraisals of current conditions and expectations of conditions six month ahead. Here we see a marked increase in confidence in October both in current conditions and expectations for conditions six month ahead.

Business Confidence Indicators (% Balance) Oct 05  Sep  05 Oct 04 M/M  Dif Y/Y Dif 2004   2003   2002  
 Producers' Confidence 4.3 1.3 1.1 3.0 3.2 -0.1 -5.6 -1.5
Germany IFO  
 Business Climate -3.5 -8.9 -10.7 5.4 7.2 -9.6 -17.6 -22.0
 Business Situation -7.4 -12.1 -16.1 4.7 8.7 -17.0 -27.9 -34.0
 Business Expectations 0.5 -5.6 -5.2 6.1 5.7 -1.8 -6.5 -9.1
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