Manufacturing (Germany):
Business climate at a record high

Firms in manufacturing still classified their current business situation as good, but in consumer durables a renewed worsening occurred. On average, demand increased so that despite stepped-up production activity, order backlogs increased and surpassed normal levels. Reports of excess inventories were somewhat more frequent but the total share of these responses was still low. Capacity utilisation remained unchanged over the previous quarter at 87.5% but was 2½ percentage points above the previous year level. Also the range of order backlogs remained unchanged at 3.0 production months. The outlook was appraised with increased optimism, with greater hopes being placed in future export business, despite the strong euro. Competitiveness, both in domestic and foreign markets inside and outside the EU, has improved. Production plans tend to be more expansive. In some industries, production is already being noticeably constrained due to the lack of specialists. Employment levels will continue to increase in the coming months, but the number of these survey responses has lessened somewhat. According to the survey responses, price increases will continue. In eastern Germany the favourable business situation in manufacturing continued to improve. In the business expectations, confidence decreased somewhat but with regard to chances on foreign markets it increased again. Production plans point to further increases. At the end of the first quarter, capacity utilisation stood at 86%, which was somewhat lower than at the end of 2006 but 3 percentage points higher than in April 2006.