Bloomberg News

German Business Confidence Unexpectedly Rose a Second Month

December 20, 2011

(Updates with economist’s comment in third paragraph.)

Dec. 20 (Bloomberg) -- German business confidence unexpectedly rose for a second month in December, suggesting Europe’s largest economy is weathering the region’s debt crisis.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, rose to a three-month high of 107.2 from 106.6 in November, the Munich-based institute said today. Economists expected a drop to 106, the median forecast of 36 economists in a Bloomberg News survey showed.

“It just confirms that Germany is weathering the storm,” said Tobias Blattner, an economist at Daiwa Capital Markets Europe in London. “Order books are still full, wage agreements are boosting consumer confidence and any decline in exports to the euro area is being cushioned by the U.S. and China.”

The Ifo index is the latest indicator to show Germany is being shielded from the worst of Europe’s debt crisis. Investor sentiment unexpectedly rose for the first time in 10 months in December and gauges of manufacturing and services activity also increased. German consumer confidence will hold its gains in January as unemployment at a two-decade low boosts the economic outlook, market research company GfK SE said today.

Ifo’s gauge of the current situation was unchanged at 116.7, while an index measuring executives’ expectations increased to 98.4 from 97.3. The euro extended its gains after the report and traded at $1.3075 at 11:05 a.m. in Frankfurt.

‘Better Prepared’

Some companies are counting on U.S. and emerging-market sales to offset the drop in European demand. Luxury carmakers Bayerische Motoren Werke AG and Daimler AG said this month they will set up factories in Brazil and the U.S. respectively to help sustain growth. BMW Chief Executive Officer Norbert Reithofer said Dec. 16 that sales will grow in the U.S., China and Europe next year unless the global economy falters.

“We are better prepared for a potential crisis” than during the 2009 recession because of lower production costs and a better financial cushion, Reithofer said.

In the U.S., consumer spending probably climbed 0.3 percent in November as Americans flocked to auto showrooms and shopped for holiday bargains, according to a Bloomberg News survey. The Commerce Department is due to publish the data on Dec. 23. The euro’s 10 percent decline against the dollar since the end of August may help German sales outside the currency region by making goods more competitive.

Debt Crisis

As European governments struggle to find a lasting solution to a debt crisis that has pushed up sovereign borrowing costs and toppled five elected governments, the European Central Bank has introduced a menu of measures designed to avert a credit crunch.

It cut its benchmark interest rate to 1 percent this month, matching a record low, and is introducing three-year unlimited bank loans. The first of those loans will be allotted tomorrow.

“One aspiration is to have them financing the real economy, especially small- and medium-sized enterprises,” ECB President Mario Draghi said in an interview with the Financial Times published yesterday.

Germany and its companies won’t escape the crisis unscathed.

The economy will grow at the slowest pace in three years in 2012 as the turmoil in Europe threatens demand in the country’s largest market, the Bundesbank said yesterday. Metro AG, the nation’s biggest retailer, on Dec. 6 cut its 2011 sales and profit forecast, blaming “the increasingly noticeable effect” of the debt crisis.

The Bundesbank forecast economic growth will slow to 0.6 percent in 2012 from 3 percent this year before recovering to 1.8 percent in 2013. Its base scenario is that the debt crisis doesn’t worsen and uncertainty among investors and consumers “gradually lessens.” The ECB cut its 2012 euro-area growth forecast this month to 0.3 percent.

“Companies will notice the crisis, but if we are lucky we may even avert a recession, which in any case would only be a mild one,” said Jens Kramer, an economist at NordLB in Hanover. “The economy is robust and will not fall off a cliff.”

--Editors: Jeffrey Donovan, Matthew Brockett

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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