Bloomberg News

German Business Confidence May Hold

March 25, 2012

German business confidence probably held at a seven-month high in March, suggesting Europe’s largest economy will return to growth even as the sovereign debt crisis curbs euro-area demand for its exports.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, stayed at February’s reading of 109.6, according to the median forecast of 44 economists in a Bloomberg News survey. Ifo releases the report at 10 a.m. in Munich today.

German manufacturing output unexpectedly contracted this month as governments and households reduced spending across the euro region, Germany’s largest export market. At the same time, policy makers have made progress in tackling the debt crisis, with the European Central Bank’s injection of more than 1 trillion euros ($1.3 trillion) into the banking system helping to bolster investor sentiment. Germany’s benchmark DAX share index is up 18 percent this year.

“Overall the economy is in good shape,” said Christian Schulz, an economist at Berenberg Bank in London. A decline in the Ifo index, which has posted four straight monthly gains, would “just mean Germany’s recovery is taking a breather after a couple of pretty spectacular months,” he said.

Ifo’s gauge of the current situation may have slipped to 117 from 117.5 and an index measuring executives’ expectations probably advanced to 102.6 from 102.3, the survey of economists shows.

Fourth-Quarter Contraction

Germany’s economy contracted 0.2 percent in the final quarter of 2011. While it “may still be moving sideways,” confidence indicators suggest “a rejuvenation of the economy in the early part of 2012” as unemployment at a two-decade low boosts domestic demand, the Bundesbank said last week.

ECB President Mario Draghi said March 8 that the outlook for the 17-nation euro area “has improved enormously” and there are “many signs of returning confidence.”

Euro-area growth will recover to 1.1 percent next year after a 0.1 percent contraction in 2012, ECB forecasts show. The German economy will expand 0.8 percent this year, according to the panel of economic experts who advise the government.

While euro-area services and manufacturing output contracted more than economists forecast in March, a separate report showed that consumer confidence improved for a third straight month.

Debt Crisis

Policy makers have made strides in solving the debt crisis.

Greece reached a debt-swap deal with its private creditors earlier this month and European leaders approved a second bailout package for the nation. Euro-region governments have also signed up to a tighter set of budget rules.

As austerity measures curb demand in Europe, German companies are compensating with sales in faster-growing markets.

“We are currently seeing demand in the European market weaken,” Juergen Geissinger, chief executive officer at Schaeffler AG, the world’s second-largest maker of roller bearings, said on March 20. “Globally, however, our business is continuing to show a positive trend.”

Bayerische Motoren Werke AG (BMW), the world’s largest maker of luxury vehicles, said on March 13 that it plans to surpass last year’s record profit. “We are off to a promising start,” with car sales in the first two months of the year at an all-time high, BMW Chief Executive Officer Norbert Reithofer said.

Continental AG (CON), Europe’s second-largest tire maker, is sticking to its forecast for a 5 percent revenue increase this year even as signs mount that growth in China, the world’s second-largest economy, is slowing.

“Even if the Chinese economy only grows 7 percent, then the car market has to grow by at least 5 percent,” Chief Executive Officer Elmar Degenhart said on March 21, adding that the Asian car market as a whole will grow about 5 percent this year, offsetting declines anticipated in Europe and North America.

Germany and its companies “are still the euro region’s Champions League players,” said Carsten Brzeski, an economist at ING Group in Brussels. “There will be growth.”

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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