German business confidence increased for a second month in June amid signs of a recovery in Europe’s largest economy, even as the euro area struggles to emerge from recession and China faces a cash crunch that may slow growth.
The Ifo institute’s business climate index, based on a survey of 7,000 executives, rose to 105.9 from 105.7 in May, in line with the median estimate of 46 economists in a Bloomberg News survey. A gauge of executives’ expectations jumped to 102.5 from 101.6, while a measure of current business conditions fell to 109.4 from 110.
The survey follows reports showing German investor confidence gained this month and industrial production jumped the most in more than a year in April. The Bundesbank last week said economic growth will show a significant acceleration in the second quarter, while warning of signs of a slowdown later in the year. A weakening Chinese economy threatens to curb the global expansion and hinder the euro area’s recovery from a record recession.
Today’s release “continues to support our expectation for soft economic growth in the rest of the year in Germany,” said Gizem Kara, an economist at BNP Paribas SA in London. “German manufacturers are feeling the pinch of weak global economic conditions.”
The euro was little changed at $1.3109 at 12:50 p.m. in Frankfurt, compared with $1.3111 before the report. The currency is down 0.1 percent today. Global stocks, bonds and commodities declined and Chinese equities entered a bear market.
Germany’s economy expanded 0.1 percent in the first quarter of this year after shrinking 0.7 percent in the final three months of 2012. Exports rose 1.9 percent April from March, beating economists estimates in a Bloomberg survey, data from the Federal Statistics Office in Wiesbaden showed this month. European Central Bank President Mario Draghi said on June 6 in Frankfurt that exports are a primary driver of growth for the 17-nation euro-area.
Beiersdorf AG (BEI), the German maker of Nivea skin cream, on May 2 reported first-quarter profit that exceeded estimates as higher emerging-market sales countered a drop in western Europe.
Today’s Ifo index shows that “there has not been any overwhelming China angst among German companies,” said Andreas Rees, chief Germany economist at UniCredit Research in Munich. “German companies have been able to withstand the recent downward pressure coming from the Chinese economy. This is not a small achievement, given that both Chinese soft and hard data kept on coming in on a weak note in the last few months.
China’s Shanghai Composite Index fell 5.3 percent today, the most in four years, after the central bank signaled it will maintain efforts to curb speculative lending and Goldman Sachs Group Inc. said a cash squeeze is hurting growth. The CSI 300 Index has dropped 22 percent from this year’s closing high on Feb. 6.
Manufacturing in the nation, Germany’s third-biggest trading partner, is shrinking at a faster pace, a preliminary reading of the Chinese Purchasing Manager’s Index showed last week. China’s overnight repurchase rate, which climbed to a record 12.85 percent on June 20, tumbled for a second day today on signs targeted injections of funds are being used to ease the cash crunch that threatens to worsen the slowdown.
Elsewhere, Italian household confidence rose this month as Prime Minister Enrico Letta is pushing a more expansive economic policy, including cutting taxes and boosting youth employment.
The euro area, Germany’s biggest export partner, is struggling to emerge from six quarters of contraction and companies are feeling the pain from the region’s sovereign debt crisis.
Puma SE (PUM), Europe’s second-largest maker of sporting goods, cut its revenue and profit forecasts for this year on May 14 after reporting first-quarter earnings that trailed analysts’ estimates, citing a ‘‘challenging” business environment in Europe and disappointing sales in China.
The ECB expects the euro-area economy to shrink 0.6 percent this year before expanding 1.1 percent in 2014. Recent survey data are showing “some improvement, but from low levels,” Draghi said on June 18 in Jerusalem.
The Bundesbank on June 7 cut its projections for Germany, which is due to hold federal elections on September 22. The Frankfurt-based central bank expects gross domestic product to expand 0.3 percent in 2013 and 1.5 percent next year, down from earlier forecasts of 0.4 percent and 1.9 percent. Signs of a slowdown in the summer months are emerging, the central bank said June 17 in its monthly report.
German new car sales resumed a decline in May, after increasing in April for the first time this year, the German Federal Motor Vehicle Office, or KBA, said on June 4. Registrations fell 9.9 percent from a year earlier to 261,316 vehicles.
Still, Daimler AG (DAI) Chief Executive Officer Dieter Zetsche said on June 12 that earnings have improved in the second quarter as new models win buyers and the Mercedes-Benz car unit reduces costs faster than anticipated.
The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, increased to 38.5 from 36.4 in May. German consumer confidence will jump to the highest level in more than 5 1/2 years this month, GfK AG said May 24, citing the market research company’s sentiment survey of about 2,000 people.
“German gross domestic product looks set to improve moderately” over the course of the year, said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt. “Germany thus continues to outperform the rest of the euro area.”
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