German business confidence unexpectedly rose from the lowest in 2 1/2 years in November, signaling Europe’s largest economy may regain some strength.
The Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, climbed to 101.4 from 100 in October, the first gain in eight months. Economists predicted a drop to 99.5, according to the median of 48 forecasts in a Bloomberg News survey. French business confidence increased from the lowest in more than three years this month, a separate report showed today.
German growth slowed less than economists forecast in the third quarter even as the euro area, the country’s largest trading partner, slipped into recession and the outlook for the global economy dimmed. While German manufacturing shrank in November, adding to signs of an economic contraction in the fourth quarter, the slowdown may prove to be temporary.
“That is truly surprising and a positive surprise but it certainly doesn’t mean German companies now expect a boom,” said Carsten Brzeski, an economist at ING Group in Brussels. “It’s more that they don’t want to join the chorus of the doom- and-gloom merchants, they know we’re not over the worst, but that things will get better. Markets have calmed down and there are green shoots in the global economy.”
The Stoxx Europe 600 Index was little changed at 12:13 p.m. in Frankfurt. The euro appreciated for a fifth straight day, trading as high as $1.2915.
Ifo’s measure of executives’ expectations rose to 95.2 from 93.2 in October, while a gauge of the current situation rose to 108.1 from a revised 107.2.
German growth slowed to 0.2 percent in the third quarter from 0.3 percent in the second, the Federal Statistics Office confirmed today. Exports, household spending and construction were the main contributors to growth, while inventories and company investment in plant and machinery subtracted from it.
German consumer confidence will rise to a five-year high this month, according to market research company GfK, as rising wages and unemployment near a two-decade low outweigh economic concerns. The economy will expand 0.8 percent this year and next, the European Commission forecasts. By contrast, it predicts a 0.4 percent contraction in the euro area this year and growth of just 0.1 percent in 2013.
“Even though we’re expecting the economy to shrink in the fourth quarter, conditions should improve in the new year,” said Tobias Blattner, an economist at Daiwa International in London. “It’s going to be a dip in growth rather than a recession in Germany.”
Elsewhere in the euro area, economies are also showing some signs of recovery. French business confidence climbed in November after President Francois Hollande unveiled a payroll tax cut for companies that will go into effect next year. A gauge of sentiment among factory executives rose to 88 from 85 in October, national statistics office Insee said in Paris.
In Italy, retail sales unexpectedly rose in September, increasing 0.1 percent from the previous month, the Italian Statistics Institute in Rome said today. Economist forecast sales to remain unchanged, according to a Bloomberg survey.
For now, European companies may struggle to maintain their sales growth as euro-region nations from Spain to Italy toughen austerity measures. Germany’s Schaeffler AG, the roller-bearing maker that’s the biggest investor in car-parts manufacturer Continental AG (CON), earlier this week lowered its 2012 sales forecast because of weaker demand in Europe and Asia, with Chief Executive Officer Juergen Geissinger saying the environment will remain “volatile and challenging.”
France, Germany’s largest individual export destination, lost its top credit rating at Moody’s Investors Service on Nov. 19. Moody’s cited the country’s “deteriorating economic prospects.” Standard & Poor’s, which stripped France of its top credit rating in January, said today there’s at least a one-in- three chance it will be lowered again next year.
“The German economy and the companies are of course thinking much more in a global context -- but in the end, the euro area is our home base,” Gernot Nerb, chief economist at the Ifo institute, told Bloomberg Television in an interview today. “The momentum, at least in the next year, will come from outside the euro area.”
The world economy will grow 3.3 percent this year -- the slowest since the 2009 recession -- and 3.6 percent in 2013, the International Monetary Fund said on Oct. 9, cutting its forecasts from 3.5 percent and 3.9 percent respectively. The Washington-based lender said it sees an “alarmingly high” risk of a steeper slowdown, with a one-in-six chance of growth slipping below 2 percent.
In Taiwan, industrial production rose 4.56 percent in October from a year earlier, after a revised 2.88 percent in the previous month, the Ministry of Economic Affairs said today. China’s factories showed the first sign of growth in more than a year, a survey of purchasing managers showed yesterday.
European Central Bank President Mario Draghi on Sept. 6 unveiled details of plan to buy government bonds to fight speculation of a currency breakup and regain control of interest rates in the euro area. That has helped boost financial markets and ease some concerns about the severity of the slowdown.
Draghi said in Frankfurt today that while the return of confidence in the euro area “is justified,” it relies on governments to pursue structural and institutional reforms. The ECB “would like to assure financial markets that we stand ready to implement” the bond plan “as and when required,” he said.
The ECB will hold its next monetary assessment on Dec. 6.
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