German Business Confidence on the Rise

A jump in one of the key measures of business confidence in Germany indicates that Europe's largest economy is pulling out of its slump.

Germany's key Ifo business sentiment index rose much more than expected in February, driven by improved expectations. The index is based on a monthly survey of over 7,000 firms.

In its fourth increase in a row, the main index climbed to 88.7, up from 86.2 in January, while the expectations index, which looks at companies view of business six month's ahead, jumped to 101.0 from 94.8.

With the German economy apparently turning the corner, Ifo's senior economist, Gernot Nerb, called for a European Central Bank interest rate cut to give the budding recovery a decisive push.

"The ECB has room to cut rates and help the upturn," Mr Nerb told Reuters news agency.

The ECB has kept its key interest rate unchanged at 3.25% since November and holds its next rate review meeting next week.

The fourth consecutive Ifo jump matches analyst assessments that the eurozone is poised for higher growth in the second half of this year.

Rising Ifo readings are usually seen running six to nine months ahead of an improvement in the economy. Germany was mired in recession during most of last year, with Bundesbank figures saying the German economy shrank by 0.25% in the fourth quarter of last year, the third negative reading in a row.

Despite the rise in the latest survey, the Ifo index still remains below August's level of 89.3. The index dropped sharply in September and October amid growing worries over the state of the German economy after the September 11 attacks.

Signs of a recovery will come as welcome news for the German chancellor, Gerhard Schröder, who faces a re-election battle later in the year. Last month, unemployment rose above the psychologically important 4m mark.