German business confidence improves as growth continues

German construction site German construction spending has picked up strongly amid signs of growing economic confidence

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German business confidence improved in November, a survey has indicated, amid rising optimism about the economy.

The closely-watched Ifo survey of business confidence revealed an above-expected rise in November, reaching its highest level since April 2012.

The index, based on a survey of 7,000 firms, rose to 109.3, compared with 107.4 in October.

The news comes as official figures confirmed that the German economy grew by 0.3% in the third quarter.

Strong domestic demand for goods helped to drive growth. A healthy labour market, moderate inflation and wage increases boosted household spending and contributed to a 0.7% increase in domestic demand, the Federal Statistics Office said.

The Bundesbank, Germany's central bank, believes the country's steady growth will be maintained as domestic demand strengthens and the global economic environment improves.

Some analysts are expecting 0.5% growth in the final quarter.

Angela Merkel's government has forecast growth of 0.5% overall for 2013, and 1.7% growth in 2014.

Rebalancing

The rise in business confidence reflects a 3% rise in capital investment in the third quarter, particularly in construction.

While weakening demand from eurozone partners has slowed Germany's traditionally export-led economy, Berlin hopes improved domestic demand will make up the difference.

The European Commission is investigating Germany's persistently high current account surplus amid criticism that it relies too heavily on exports.

"With today's data the latest criticism on the German growth model looks a bit like crying over spilled milk," said Carsten Brzeski, senior economist at ING.

"The often called for rebalancing of the economy is already taking place."

The news comes a day after Markit's preliminary composite Purchasing Managers' Index, which tracks growth in the manufacturing and services sectors, rose to 54.3 in November, up from 53.2 the previous month.

This figure was also higher than expected, and adds weight to the positive German growth story.

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