German Business Confidence Unexpectedly Increases
German Business Confidence Unexpectedly Increases
Michele Tantussi/Bloomberg
An employee arranges DHL Worldwide Express air cargo boxes at Leipzig-Halle Airport in Leipzig.
An employee arranges DHL Worldwide Express air cargo boxes at Leipzig-Halle Airport in Leipzig. Photographer: Michele Tantussi/Bloomberg
Aug. 25 (Bloomberg) -- Kai Carstensen, an economist at the Ifo Institute, talks about the unexpected rise in German business confidence in August. The Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, increased to 106.7 from 106.2 in July. That’s the fourth straight monthly increase and the highest level since June 2007. Carstensen speaks from Munich with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)
German business confidence unexpectedly increased for a fourth month in August to a fresh three-year high, suggesting the economy may not lose as much momentum as some economists forecast.
The Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, rose to 106.7 from 106.2 in July. Economists expected a drop to 105.7, according to the median of 36 forecasts in a Bloomberg News survey.
Europe’s largest economy expanded 2.2 percent in the second quarter, the fastest pace in two decades, as companies including luxury carmaker Daimler AG ramped up production to fill booming export orders. The Bundesbank said last week the fundamental economic situation is “very favorable.” Budget cuts across the 16-nation euro region and a slowing global recovery may crimp demand for German goods and damp growth in the second half of the year.
“We’re looking at a record year in terms of growth,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt who expects 3.4 percent expansion this year, matching the 2006 record. “Domestic demand is picking up, balancing out any falloff from declining exports. At the same time, the economy is unlikely to keep growing at the same pace.”
The Bundesbank last week raised its 2010 growth forecast to 3 percent from 1.9 percent. The economy contracted 4.7 percent in 2009.
Evidence of slowing growth around the world is prompting some investors to dash for the safety of bunds and other assets seen as a haven. The yield on Germany’s 10-year bund yesterday dropped to a record low of 2.185 percent as U.S. stocks fell to their lowest in seven weeks.
Export Boom
Exports and investment fueled Germany’s second-quarter growth. Foreign sales soared 8.2 percent in the quarter and company investment in plant and machinery jumped 4.4 percent. Private consumption rose 0.6 percent.
HeidelbergCement AG, the world’s largest maker of aggregates used to produce concrete and asphalt, said July 30 that sales rose for the first time in six quarters. Chief Executive Officer Bernd Scheifele said revenues and operating income will rise this year.
Companies are also adding workers to help fill orders, helping to push down unemployment for a 13th month in July. The jobless rate declined to 7.6 percent.
Daimler, which raised its 2010 operating forecast on July 27, has hired 1,800 temporary workers, while Bayerische Motoren Werke AG has added 5,000 temporary workers. That may boost consumer spending and help offset weakening foreign demand as the global recovery shows signs of running out of steam.
Global Slowdown
Shares fell around the globe yesterday after an industry report showed a record plunge in U.S. home sales in July, adding to evidence the world’s biggest economy is stumbling. Growth in China’s manufacturing industry has also weakened.
Expansion in Europe’s services and manufacturing industries cooled this month as austerity measures in the region’s most indebted countries weighed on spending. Nobel Prize-winning economist Joseph Stiglitz said in an interview broadcast yesterday that budget cuts may push the euro area, Germany’s biggest export market, back into recession.
“German order books are still full and domestic demand is picking up,” said Alexander Koch, an economist at Unicredit Group in Munich. “The economy will grow very solidly, just not as fast as in the first half.”
To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net
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