Economic Growth

FRANKFURT (Dow Jones)--The German Ifo institute's business confidence data improved in September, confirming a pick-up in economic growth in the third quarter, but economists warned against over-optimism as potential headwinds remain for Europe's largest economy. Though the index rose to 91.3 in September from 90.5 in August, the sixth straight improvement, it missed expectations for a rise to 92.0, and there are many reasons to think the German economy will struggle in the months ahead, said IHS Global Insight senior analyst Timo Klein. "Still-difficult credit conditions, anticipated further labor market deterioration and the wearing off of some of the fiscal and monetary policy stimulus measures - all of which will dampen private consumption - argue for a setback in early 2010," said Klein. A sustained and more broad-based economic recovery should only be expected after mid-2010, he added. "This is a reminder not to get too carried away about the strength of the recovery," said Jennifer McKeown, an economist at Capital Economics. However, the figures were strong enough to raise further hopes of reasonable economic growth in the current quarter. Commerzbank AG analyst Simon Junker anticipates GDP growth of 0.8% in the third quarter over the second, while BNP Paribas SA's Dominic Bryant expects a 1.0% quarterly increase. The euro weakened slightly after the release of the data, to $1.4736 from $1.4759 beforehand. German government bonds moved higher amid signs the domestic recovery will be slow and bumpy. "There's now nearly a balance between pessimists and optimists" with regard to the six-month business outlook, said Hans-Werner Sinn, president of the Ifo institute. In light of the "catastrophic developments" of the past 12 months, "this is good news," he said. However, while the business situation and outlook have improved, by far the greater number of firms still assess the business situation as being poor, Sinn added. All recent indicators point to a further pick-up in economic activity in Germany, but caution is still warranted, analysts said. "Next year, when all exogenous stimulus is gone, the economy could easily be left with its export sector as the sole growth driver," said Carsten Brzeski, analyst at ING Bank.