German Business Confidence Declines for Second Month as Energy Prices Rise

German business confidence fell for a second month in April after oil prices rose to the highest in 2 1/2 years, damping the global economic outlook and threatening to curb domestic consumer spending.

The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped to 110.4 from 111.1 in March. Economists expected a decline to 110.5, according to the median of 38 forecasts in a Bloomberg News survey. The index rose to 111.3 in February, the highest since records for a reunified Germany began in 1991.

Crude oil climbed above $112 a barrel this month, the most since September 2008, on political unrest in North Africa and the Middle East. While market researcher GfK AG says rising prices are eroding German consumer confidence, the Bundesbank estimates economic growth accelerated in the first quarter as companies increased spending and hiring to meet export orders from emerging nations such as China.

“The Ifo has now peaked, though it’s still at a remarkably high level,” said Andreas Moeller, an economist at WGZ Bank in Dusseldorf, whose forecast matched the reading. “While growth remains robust, German companies will have to get used to the fact that the pace of growth will slow.”

Ifo’s gauge of the current situation rose to 116.3 from 115.8, while an index measuring executives’ expectations fell to 104.7 from 106.5. The euro, which has climbed 9 percent against the dollar this year, eased to $1.4615 after Ifo’s report from $1.4641 beforehand.

Losing Momentum

Nick Kounis, head of macro research at ABN Amro in Amsterdam, said Ifo’s expectations indicator broadly tracks changes in quarterly gross domestic product.

“The recent decline may be a sign that the German economy is losing some of its momentum,” he said. “Indeed, we think that higher oil prices, the rise in the euro, fiscal consolidation and some cooling of global growth could see the pace of the recovery slow in the coming months.”

The German government predicts growth of 2.6 percent this year after a record 3.6 percent in 2010. Rising oil prices may put a brake on the global recovery and fan inflation as companies pass on higher input costs. Higher energy costs pushed German inflation to 2.3 percent last month.

Faster Inflation

The European Central Bank, which aims to keep inflation below 2 percent across the 17-nation euro region, this month raised interest rates from a record low. It left the door open for further moves even as a sovereign debt crisis damps growth in peripheral euro-area nations such as Greece, Portugal and Ireland.

“German companies are not really going to be hit by tighter monetary policy,” said Holger Schmieding, chief economist at Berenberg Bank in London. “It’s still going to be loose for a booming economy.”

German carmaker Volkswagen AG on April 15 posted record first-quarter sales, powered by deliveries in China, Europe and the U.S. Daimler AG and Bayerische Motoren Werke AG said this month they expect double-digit growth in China this year.

Robert Bosch GmbH, the world’s largest automotive industry supplier, said April 14 that it expects record sales of 50 billion euros ($73 billion) in 2011 and plans to hire 15,000 workers globally.

Rates ‘Too Low’

The benchmark DAX share index has gained 5.4 percent this year. German factory orders and industrial production jumped in February.

“ECB rates are too low, and I don’t see that the ECB will raise rates in the near future to a level that’s appropriate for the German economy,” Ifo economist Kai Carstensen said in a Bloomberg Television interview.

According to the Bundesbank, Europe’s largest economy may have expanded as much as 1 percent in the first three months of the year and will probably maintain its growth momentum in the current quarter.

“The oil price is putting pressure on both companies and consumers,” said Alexander Koch, an economist at UniCredit Group in Munich. “But for now the economy is booming, and that is unlikely to change in the near future.”

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

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