German Business Confidence Unexpectedly Improves as Economy Dodges Crisis
German Ifo Business Confidence Unexpectedly Improved in June
Hannelore Foerster/Bloomberg
German companies have boosted output and hiring, pushing the jobless rate to the lowest in two decades.
German companies have boosted output and hiring, pushing the jobless rate to the lowest in two decades. Photographer: Hannelore Foerster/Bloomberg
June 24 (Bloomberg) -- Kai Carstensen, head of the business climate department at the Ifo Economic Institute, discusses the outlook for Germany's economy. German business confidence unexpectedly improved in June, increasing to 114.5 from 114.2 in May. Carstensen speaks from Munich with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)
German business confidence unexpectedly improved in June, suggesting Europe’s largest economy is weathering the region’s worsening sovereign debt crisis and slowing global growth.
The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, increased to 114.5 from 114.2 in May. Economists forecast a drop to 113.4, the median of 39 estimates in a Bloomberg News survey showed. The index remains close to a record high of 115.4 posted in February.
German companies have boosted output and hiring, pushing the jobless rate to the lowest in two decades. The Bundesbank on June 10 raised its economic growth forecast for this year, calling the recovery “broad based.” Still, the economy may struggle to maintain its growth momentum as the region’s governments seek to avert a Greek debt restructuring.
“If executives are this optimistic in light of the Greek crisis and the U.S. slowdown, that’s the sign of a strong, solid economy,” said Jens Kramer, an economist at NordLB in Hanover. “Domestic demand is contributing to growth, insulating companies somewhat from external headwinds.”
The euro jumped more than half a cent to $1.4282 at 10:51 a.m. in Frankfurt. While Ifo’s gauge of the current situation rose to a record 123.3 from 121.5 in May, an index of executives’ expectations dropped to 106.3 from 107.4.
Growth Forecasts
“Expectations have weakened slightly,” Kai Carstensen, head of Ifo’s business climate department, told Bloomberg Television. “For that reason I think that growth will slow down a little bit, but we will stay in an upswing.”
The Bundesbank forecasts economic growth of 3.1 percent this year after a record 3.6 percent in 2010. In 2012, the expansion may weaken to 1.8 percent, it said.
The International Monetary Fund on June 17 lowered its forecast for global growth to 4.3 percent from 4.4 percent, citing concern about a setback in the U.S. recovery and a potential contagion from Europe’s debt crisis. Olivier Blanchard, chief economist at the IMF, said there’s a threat of sovereign defaults.
European Union leaders today vowed to stave off a Greek default as long as Prime Minister George Papandreou pushes through a package of budget cuts next week, pledging to do whatever it takes to stabilize the euro economy.
The European Central Bank and the German government have clashed over how much investors should contribute to alleviating Greece’s debt load, which reached 143 percent of gross domestic product in 2010.
Signs of Slowdown
Some companies have already signaled concern that tougher austerity measures may hurt earnings.
“The worsening debt crisis in several European countries is affecting our business more and more strongly,” Fritz Oesterle, chief executive officer of Stuttgart-based Celesio AG (CLS1), Europe’s biggest drug wholesaler, said on June 16.
The German economy is showing signs of slowdown after expanding 1.5 percent in the first quarter. Manufacturing growth weakened this month and investor confidence dropped to the lowest in 2 1/2 years. German exports fell in April.
With governments stepping up budget cuts and cooling global growth hurting exports, companies may rely on reviving domestic demand to bolster sales. German unemployment declined for a 23rd month in May, lowering the jobless rate to 7 percent.
‘Very Successful’
Volkswagen AG (VOW) and Porsche Automobil Holding SE (PAH3) are poised for further “distinct growth” even as global conditions are “challenging,” CEO Martin Winterkorn said on June 17. Volkswagen, Europe’s largest carmaker, may have another “very successful” year in 2011, he said.
Services growth unexpectedly accelerated in June, indicating “German demand could serve as an anchor of the wider euro-zone economy,” said Christian Schulz, an economist at Joh. Berenberg Gossler & Co. in London.
“Germany’s domestic economy is doing really well,” said Aline Schuiling, an economist at ABN Amro NV in Amsterdam. “That should cushion some of the impact from an expected slowdown in exports and keep the economy in very good shape.”
To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net
To contact the editor responsible for this story: Matthew Brockett at mbrockett1@bloomberg.net
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