German business morale rises in September

“They did not, they actually rose slightly”, Wohlrabe said.

Its business climate index rose to a seasonally-adjusted 108.5 from 108.4 in August, ahead of expectations for a reading of 108. But firms’ were less positive about their current business situation, with the corresponding index down to 114.0 from 114.8.

The scandal has rocked Germany’s business and political establishment and analysts warn the crisis could develop into a bigger threat to Europe’s largest economy than the Greek debt crisis. Germany’s expansion in gross domestic product will pick up to 2.3% in 2017 from 1.8% this year, the Kiel Institute for the World Economy said on September 10.

Analysts welcomed the renewed rise in the Ifo barometer.

Still, it said there are some reasons for caution.

The Ifo survey tended to lag behind other leading sentiment indicators, which had softened in September.

“And, of course, none of the surveys will yet have picked up the impact of the VW scandal”, he said.

“We had expected that the export expectations of industry would have perhaps fallen a bit”, Ifo economist Klaus Wohlrabe said, pointing to China.

However, the broader concern for the German economy is that other auto makers such as Daimler and BMW could suffer fallout from the Volkswagen disaster. While a gauge of German manufacturing and services activity fell more than economists anticipated in September, orders rose at the fastest pace in nearly two years in September, pushing a gauge of outstanding business to the highest since May 2011, Markit Economics said this week.

He felt the Ifo index could therefore fall next month.

The surprisingly strong Ifo survey pointed to economic growth of 0.5 percent in both third and fourth quarters, according to BayernLB economist Johannes Mayr.

And he added: “At this stage, it is way too early to derive any reliable estimate whether and to which extent the events at Volkswagen will have a dampening effect on the overall economy”.