German business confidence unexpectedly decreased for the first time in six months in October amid uncertainty over the strength of the recovery in the euro area.
The Ifo institute’s business climate index, based on a survey of 7,000 executives, fell to 107.4 from 107.7 in September. That compares with a median forecast of 108 in a Bloomberg News survey of 39 economists.
German factory orders unexpectedly declined in August and the Bundesbank said this week that growth probably slowed in the third quarter after a 0.7 percent expansion in the three months through June. At the same time, industrial production grew more than economists predicted, unemployment remains near a two-decade low and investor sentiment is at the highest level in more than three years.
“We would not see today’s downward correction as the harbinger of a negative trend,” said Annalisa Piazza, a fixed-income analyst at Newedge Group in London. “The pace of activity is unlikely to accelerate sharply but we still expect the solid foundation of the German economy to remain supportive going forward.”
The euro fell after the report and traded at $1.3815 at 10:24 a.m. in Frankfurt. European stocks remained lower, with the Stoxx Europe 600 Index down 0.2 percent today.
German gross domestic product probably increased 0.4 percent in the third quarter and will rise at the same pace in the fourth, according to Bloomberg’s monthly economic survey published on Oct. 10. The German Federal Statistics Office is due to release preliminary data for the past quarter on Nov. 14.
The 17-nation euro area, Germany’s biggest trading partner emerged from its longest-ever recession in the second quarter, thanks in part to Germany’s economic strength. Since then manufacturing and services output in the region has expanded, according to a survey of purchasing managers, and the Spanish economy, the bloc’s fourth largest, has returned to growth.
Yet, there are still “broad-based weaknesses in the economy” and the risks to the outlook continue “to be on the downside,” European Central Bank President Mario Draghi said this month.
The Frankfurt-based ECB predicts the currency bloc’s economy will shrink 0.4 percent this year before growing 1 percent in 2014.
“Europe overall in the next four years will have quite a challenging position,” Henkel AG Chief Executive Officer Kasper Rorsted said in an interview with Bloomberg TV on Oct. 2. “We don’t expect a lot of growth, if any at all in western Europe” until 2017, he said.
Deutsche Lufthansa AG (LHA) this week predicted operating profit for 2013 that fell short of analysts’ estimates as restructuring costs mount and the strong euro depresses revenue. The single currency has appreciated more than 5 percent since early September.
Olaf Koch, Chief Executive Officer at Metro AG (MEO), Germany’s biggest retailer, said on Oct. 17 he’s “confident” about Christmas business after increased electronics sales in the company’s home market helped nine-month revenue meet analysts’ estimates.
“In Germany, the economy has turned the corner and embarked on a sustained recovery,” said Lothar Hessler, an economist at HSBC Trinkaus & Burkhardt AG in Dusseldorf. “Of course, the level of the second quarter can’t be maintained, but private consumption and investment are increasing and put the economy on increasingly solid footing.”
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