Germany's business leaders are at their most optimistic it at least six year, according to a closely-watched sentiment survey published Monday, as Europe's biggest economy leads a regional recovery that could offset political concerns in France and Britain.
The headline reading from the IFO Institute, a Munich-based think tank, measured sentiment among the 7,000 business leaders surveyed at 112.3, the highest level since July 2011 and firmly ahead of market expectations.
"The political uncertainties don't affect the German economy," said Ifo economist Klaus Wohlrabe, while Ifo President Clemens Fuest said the reading showed the "upswing in the German economy is gaining impetus."
The euro traded a three-and-a-half month high of 108.65 against a weaker U.S. dollar Monday, while benchmark 10-year German bund yields fell 2 basis points to 0.39%.
The currency was also boosted by an important win for Chancellor Angela Merkel's Christian Democratic Union in a regional election in the southwestern district of Saarland. The win, which saw a key Merkel ally gain more than 40% of the vote, also pushed her Social Democratic rivals into a distant second in the first electoral test for their new leader, former EU Parliament President Martin Schulz.
The overall gauge of business sentiment has important implications for European growth given not only Germany's size, but also the fact that the region's myriad political risks -- from Britain's impending exit to France's chaotic presidential elections to Turkey's antagonistic relationship with its various European neighbours -- don't seem to be hindering investment.
Last week, the IHS Markit Composite PMI reading of private sector activity in the Eurozone surged to 56.7 in March, the fastest pace in just under six years, with the manufacturing sector powering the advance in Germany and services supporting growth in France.
In Germany, the rate of private sector job growth was the strongest since March of 2011 while both input and output prices accelerated at a six-year high pace. Collectively, the figures suggest a headline inflation rate of around 2.1% for the whole of 2017, IHS Markit economist Trevor Calchin.
"Inflationary pressures continued to build, with input and output prices both rising at the fastest rates in around six years," he said. "IHS Markit is currently forecasting headline inflation to reach 2.1% over 2017 as a whole, and the latest official monthly data showed that consumer price inflation hit 2.2% in February - a four-and-a-half year high."