Rising German business confidence stokes hopes for European recovery

Hopes that the European economy was on the brink of recovery rose sharply yesterday after German business confidence enjoyed its strongest rise for three years.

Hopes that the European economy was on the brink of recovery rose sharply yesterday after German business confidence enjoyed its strongest rise for three years.

A key business climate index jumped by much more than expected in February, propelled by improved expectations.

The index rose to 88.7 points from 86.2 points in January, the Ifo institute said. It was the fourth month in a row the index had risen. Gernot Nerb, the Ifo's senior economist, said: "We're now close to the turning point."

The survey was published just hours after Wim Duisenberg said he believed a "mild" recovery would start this year before accelerating in 2003.

The euro jumpedafter the figures were published, hitting a peak of 87.20 cents, up from 86.95 cents on Monday. But it slipped back later in the day as analysts turned their attention to a fall in companies' assessment of current conditions.

"The increasingly gloomy assessment of the current situation suggests GDP will have stagnated in the first quarter of this year," said Ralph Solveen, an economist at Commerzbank. "The marked upturn in business expectations points to a positive growth in the second quarter."

The survey showed that the expectations component, which measures companies' view of business six months ahead, rose to 101.0 points from 94.8 in January.

But companies' assessment of their current situation fell to 76.8, the lowest level in more than eight years, from 78.0 in January.

Meanwhile, inflation in France rose 0.5 per cent in January compared with December, largely due to an increase in the cost of fresh food, the national statistics office said.