Bloomberg News

German Business Confidence Jumps to Highest in Five Months

January 26, 2012

(Updates with comment from economist in fourth paragraph.)

Jan. 25 (Bloomberg) -- German business confidence jumped more than economists forecast in January to a five-month high, signaling Europe’s largest economy may avoid a recession.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 108.3 from 107.3 in December. Economists predicted an increase to 107.6, according to the median of 42 forecasts in a Bloomberg News survey. That’s the third straight monthly increase.

The report, along with surveys showing manufacturing and service industries expanded more than economists forecast this month, adds to evidence that Germany has shaken off a probable contraction in the fourth quarter. While the International Monetary Fund yesterday cut its prediction for German expansion this year, it said that the economy will weather a recession in the region and keep growing.

“This is not only great news for Germany, but also bodes well for the euro area,” said Andreas Rees, chief Germany economist at UniCredit Group in Munich. “Over the past 20 years, whenever the Ifo expectations component has risen three months in a row it signaled a turning point also for the euro- area economy. We should see some more green shoots across the rest of Europe by the summer.”

German Reunification

Ifo’s gauge measuring executives’ expectations advanced to 100.9 from 98.6, while the current-situation index fell to 116.3 from 116.7.

The euro touched $1.3052 after the report was released before slipping to $1.2986 at 11:19 a.m. in Frankfurt, down 0.4 percent. Two-year notes stayed lower, with the yield rising two basis points today to 0.24 percent.

Germany’s statistics office said on Jan. 11 that the economy probably shrank about 0.25 percent in the final three months of last year. Growth slowed to 3 percent in 2011 from 3.7 percent in 2010, which was the most since German reunification two decades ago.

The country’s economic upswing has only come to “a temporary halt,” Bundesbank President Jens Weidmann said on Jan. 23. While growth may stagnate in the first three months of the year, “economic dynamism should return in the course of the year.”

The IMF yesterday forecast growth of 0.3 percent in 2012. While that’s lower than its previous estimate, it compares with a contraction of 0.5 percent predicted for the euro region.

Cars and Machinery

Unemployment fell more than forecast in December as exports of cars and machinery boomed and one of the mildest winters on record helped support jobs in construction. The adjusted jobless rate dropped to 6.8 percent, a two-decade low, which will help bolster domestic demand.

Bayerische Motoren Werke AG, Audi AG and Daimler AG, the world’s three biggest luxury carmakers, all said this month they plan to grow faster than competitors in 2012 after setting sales records last year.

Even though policy makers are still grappling with the region’s debt crisis and the risk of a credit crunch is not yet banished, consumer confidence in the euro area, Germany’s biggest export partner, unexpectedly rose this month. European Central Bank President Mario Draghi has said that 2012 will be “a much better” year for the bloc.

“It obviously all depends on the crisis not blowing up again,” said Ken Wattret, chief euro-area economist at BNP Paribas SA in London, who has revised his forecast for German growth this year to 1.1 percent from 0.4 percent. “But for now, there is real traction in the German economy.”

--With assistance from Leon Mangasarian in Berlin, Kristian Siedenburg in Budapest and Matthew Brown in London. Editors: Craig Stirling, Patrick G. Henry

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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