German Business Confidence Index May Hold Steady in February

By Gabi Thesing

Feb. 24 (Bloomberg) -- German business confidence may hold steady in February as executives weigh the government’s stimulus program and interest-rate cuts from the European Central Bank, a survey of economists shows.

The Ifo institute will say its business climate index stayed at 83, according to the median of 37 forecasts in a Bloomberg News survey. Ifo will release the report, based on a survey of 7,000 executives, at 10 a.m. in Munich today.

German lawmakers last week agreed to more than double the government’s fiscal stimulus to about 80 billion euros ($105 billion) to stem the country’s worst recession since World War II. The ECB has also signaled it will cut interest rates to a record low next month as the global economic slump prompts companies to reduce production and lay off workers. The International Monetary Fund expects the German economy, Europe’s largest, to contract 2.5 percent this year.

“There is still hope that all the stimulus programs will help revive the economy in the second half of the year,” said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. “The economy is at rock bottom at the moment and it can’t really get any worse.”

Ifo’s gauge of current conditions may decline to 84.9 from 86.8, the survey of economists shows. The measure of expectations is expected to rise for a second month, to 81.1 from 79.4.

Investor Confidence

German investor confidence jumped the most in more than 15 years this month on hopes for an economic recovery later this year.

Chancellor Angela Merkel’s stimulus program, which includes tax cuts and infrastructure investment, amounts to about 1.6 percent of gross domestic product, making it the biggest spending boost in Europe.

The ECB, which has lowered its benchmark lending rate by 2.25 percentage points since early October to 2 percent, is poised to deliver another reduction in March.

Some policy makers’ reluctance to cut rates as aggressively as the Federal Reserve and Bank of England may be melting as data suggest Europe’s recession could deepen.

“Official interest rates have been lowered; in many countries they are near zero,” ECB council member Mario Draghi said in a speech in Milan on Feb. 21. “Worrying about getting too close to the lower limit for nominal interest rates cannot be a reason for inaction.”

Manufacturing and service industries unexpectedly contracted at a record pace this month, a survey of purchasing managers showed on Feb. 20. The report “challenges our forecast of a stabilization in first-quarter economic data,” Royal Bank of Scotland economists wrote in a research note.

Companies Retrench

German car makers Volkswagen AG, Bayerische Motorenwerke AG and Daimler AG are among companies that have scaled back production and employment as the global slump saps demand.

Plant and machinery makers will reduce output by 7 percent this year and cut as many as 25,000 jobs, the VDMA industry association said Feb. 10.

Deutsche Lufthansa AG, Europe’s second-largest airline, said Feb. 1 that January passenger numbers fell 9.3 percent from a year earlier.

Ifo’s index unexpectedly rose in January for the first time in eight months. Michael Holstein, an economist at DZ Bank AG in Frankfurt, said a second consecutive gain “would be a sign of hope that the worst could be behind us.”

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