German Business Confidence Unexpectedly Surges
Bayerischen Motoren Werke AG chief executive officer Norbert Reithofer. Photographer: Guenter Schiffmann/Bloomberg
German business confidence unexpectedly surged to a three-year high in July after exports boomed and economic growth accelerated.
The Ifo institute said its business climate index, based on a survey of 7,000 executives, jumped to 106.2, the highest since July 2007, from 101.8 in June. That’s the biggest monthly increase since records for a reunified Germany began in 1990. Economists expected a decline to 101.5, according to the median of 41 forecasts in a Bloomberg News survey.
The report is the latest to suggest Europe’s recovery may be stronger than economists forecast even as governments cut spending to rein in budget deficits and investors fret over the health of the region’s banks. Growth in Europe’s services and manufacturing industries unexpectedly accelerated in July, consumer confidence improved this month and industrial orders rose in May, data released yesterday showed.
“The outlook for economic growth in Europe has been too pessimistic,” said Klaus Baader, chief euro-area economist at Societe Generale in London. German data in particular “show astonishing strength in all sectors of the economy,” he said.
The euro jumped almost a cent to $1.2966 after the report. Ifo’s measure of executives’ expectations rose to 105.5 from 102.5. The gauge of the current situation increased to 106.8 from 101.2.
Raised Forecasts
The Bundesbank on June 11 raised its growth forecasts for Europe’s largest economy, predicting expansion of 1.9 percent this year and 1.4 percent in 2011, up from 1.6 percent and 1.2 percent respectively. The economy contracted 4.9 percent last year, the most since World War II.
The U.K. economy, one of Germany’s biggest export markets, grew 1.1 percent in the three months through June, almost twice as much as economists forecast, the Office for National Statistics said in London today.
German exports leapt 9.2 percent in May and unemployment fell for a 12th straight month in June.
The economy is experiencing a “powerful” recovery, with the labor market witnessing a “minor miracle,” Chancellor Angela Merkel said this week.
Bayerische Motoren Werke AG, the world’s largest luxury carmaker, on July 13 raised its 2010 sales and earnings forecast. Its rival Daimler AG, the second-largest luxury car manufacturer, increased its full-year forecast last week after second-quarter profit beat analysts’ estimates.
Slowing Dynamic
Volkswagen AG’s Audi luxury division said on July 8 that sales rose 8.7 percent last month, led by growth in China, the U.S. and the U.K.
Still, the benchmark DAX share index has dropped 1 percent in the past month and investor confidence declined for a third straight month in July. Factory orders unexpectedly fell for the first time in five months in May.
“The environment for the second half of the year looks more solid than initially expected,” said Alexander Koch, an economist at UniCredit in Munich. “Nevertheless, although a deceleration in the economic dynamic is likely to be postponed, it still remains inevitable.”
European regulators are testing 91 banks to examine whether they can withstand a shrinking economy and a drop in government- bond values. Governments are counting on the tests on firms including Frankfurt-based Deutsche Bank AG to reassure investors about the strength of the financial system and the amount of state support lenders may need. The results are due to be published at 6 p.m. today Frankfurt time.
“Should a German machine builder worry about bank stress- test results?” said Jens Kramer, an economist at NordLB in Hanover. “I see no reason why. I don’t think that credit supply will suffer.”
To contact the reporters on this story: Christian Vits in Frankfurt at cvits@bloomberg.net; Simon Berberich in Frankfurt at sberberich@bloomberg.net.
Rate this Page