Business Confidence in Germany Advances for First Time Since June: Economy

By Gabi Thesing - Nov 24, 2011 5:43 PM GMT+0700

German business confidence unexpectedly rose for the first time in five months in November, defying Europe’s worsening debt crisis.

The Munich-based Ifo institute’s business climate index, based on a survey of 7,000 executives, increased to 106.6 from 106.4 in October. Economists expected a decline to 105.2, according to the median of 40 forecasts in a Bloomberg News survey.

“Although downside risks certainly remain, doomsday is not around the corner,” said Andreas Rees, chief German economist at UniCredit Markets and Investment Banking in Munich. “A recession, and especially a deep and nasty one, is not in the pipeline.”

German unemployment remains near a two-decade low, supporting consumer spending and helping to offset the impact of waning demand for the country’s exports across the 17-nation euro region. Still, concerns that Europe’s largest economy is not immune to the escalating debt crisis were stoked yesterday when Germany failed to get bids for 35 percent of the 10-year bonds it offered for sale.

The euro rose about a quarter of a cent after Ifo’s report before retreating to trade little changed at $1.3375 at 11:40 a.m. in Frankfurt. The benchmark DAX Share Index (DAX) gained 1.3 percent. Ifo said its gauge of the current situation held steady at 116.7 while an index of executives’ expectations climbed to 97.3 from 97.

‘Robust Condition’

Hans-Peter Keitel, the president of Germany’s BDI industry federation, said on Nov. 21 that a recession is unlikely as industrial companies are in “robust condition” with “well filled” order books.

Adidas AG Chief Executive Officer Herbert Hainer said on Nov. 3 that Europe’s debt crisis won’t halt growth in the sporting-goods market and forecast higher earnings next year as the company expands in Russia and China.

The German economy expanded 0.5 percent in the third quarter, more than the 0.3 percent achieved in the second, with growth driven almost solely by domestic demand, a final reading from the Federal Statistics Office showed today.

U.K. economic growth also accelerated in the third quarter as stock-building and government spending offset weak consumer spending and business investment, the Office for National Statistics confirmed today in London.

Global Slowdown

The Bank of England has nevertheless reduced its 2012 growth forecast, predicting an annual rate of about 1.4 percent in the fourth quarter next year, as Europe’s debt crisis contributes to a global slowdown.

Taiwan today cut its forecasts for this year and next after the island’s economy expanded at the slowest pace since 2009 last quarter.

The European Commission on Nov. 10 slashed its euro-region growth estimate for next year to 0.5 percent from 1.8 percent, citing the debt crisis. In Germany, growth may slow to 0.8 percent in 2012 from 2.9 percent in 2011, the Brussels-based commission projected.

Some 18 months after Greece was first bailed out by euro- area nations, governments are still struggling to find a lasting solution to a crisis that has toppled five elected governments and is now engulfing Italy and Spain.

‘Uncertain Situation’

Germany’s 10-year bond yield climbed to 2.23 percent today from 1.91 percent on Nov. 21 as investors start to doubt the country’s haven status.

The turmoil has prompted companies such as Deutsche Lufthansa AG (LHA) to scale back capacity to counter an anticipated slowdown. Infineon Technologies AG (IFX), Europe’s second-largest maker of semiconductors, on Nov. 16 forecast a steeper decline in full-year sales than analysts estimated.

German manufacturing output contracted for a second month in November and investor confidence dropped to a three-year low.

“The longer this uncertain situation persists, the larger the worries that the debt crisis will spread to the real economy,” Norbert Steiner, CEO of K+S AG, Europe’s largest maker of potash, said earlier this month. “Psychology plays an important role.”

Some companies are counting on U.S. and emerging-market sales to offset the drop in European demand.

Bayer AG (BAYN), Germany’s largest drugmaker, said Nov. 16 it expects sales in Asia to grow more than 60 percent by 2015 as it builds local factories and sales networks. Bayerische Motoren Werke AG Chief Financial Officer Friedrich Eichiner earlier this month predicted “double-digit” percentage sales growth next year in the U.S.

ECB Stimulus

While the European Central Bank has extended the use of its unconventional tools, such as offering banks unlimited cash for more than a year and purchasing the bonds of debt-strapped governments, policy makers have rejected calls to counter the crisis by printing money. The central bank, which will publish its latest economic projections in December, earlier this month forecast a “mild recession” in the euro area.

“It’s obviously bitter for Germany that the main trading partner is heading for a massive slump,” said Jens Kramer, an economist at NordLB in Hanover. “However, the recovery has put the economy on a broader foundation, so stronger domestic demand should help insulate Germany somewhat.”

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