German Business Confidence Rises for a Second Month

German business confidence increased for a second month in December, signaling Europe’s largest economy may support a euro-area recovery next year.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 102.4 from 101.4 in November. That’s the second straight increase after sentiment dropped to a 2 1/2 year low in October. Economists predicted a gain to 102, according to the median forecast of 43 economists in a Bloomberg News survey.

German factory orders and exports rose in October as shipments to countries outside Europe offset weaker demand in the 17-nation currency bloc, which is battling recession after governments cut spending to rein in excessive deficits. The Bundesbank said this week it expects the German economy to grow next year after shrinking markedly in the fourth quarter.

“Recent survey evidence suggests sentiment is bottoming out in Germany, providing further support to our view that the weakness in German economic outlook is not to last long,” said Gizem Kara, European economist at BNP Paribas in London. The fourth quarter “will prove to be the bottom of the downturn,” with the first quarter “already shaping up much better.”

Ifo’s gauge of the current situation slipped to 107.1 from 108.1, while a measure of executives’ expectations rose to 97.9, the highest since May, from 95.2 in November.

The euro rose after the report and traded at $1.3281 at 11:44 a.m. in Frankfurt, up 0.4 percent on the day. The benchmark DAX index increased for a fourth day, gaining 0.3 percent to 7676.39.

Downside Risks

“There’s a good chance we will see a recovery some time next year,” said Alexander Koch, an economist at UniCredit Research in Munich. “At the same time, downside risks remain for the German economy, coming mainly from its euro-area partners.”

The ECB revised down its economic forecasts for the euro region earlier this month, predicting contractions of 0.5 percent this year and 0.3 percent in 2013. The Bundesbank also lowered its growth outlook for Germany, anticipating expansions of 0.7 percent for 2012 and and 0.4 percent next year.

German industrial production unexpectedly dropped 2.6 percent in October and unemployment rose for an eighth month in November.

Schaeffler AG, the roller-bearing maker that is the biggest investor in car-parts manufacturer Continental AG (CON), last month lowered its 2012 sales forecast because of weaker demand in Europe and Asia.

‘Perceptible Decline’

“Indicators point to a perceptible decline in economic activity at the end of the year,” the Bundesbank said in its monthly report published this week. Still positive export expectations and returning business confidence “may point to the fact that the period of economic weakness in Germany can be overcome soon.”

The ECB’s new bond-purchase program and the creation of a single supervisor calmed financial markets and will help foster a gradual recovery in the euro area in the second half of next year, President Mario Draghi said Dec. 17.

In the U.K., Bank of England policy makers voted 8-1 to leave their bond-purchase program on hold this month as immediate dangers from the sovereign debt crisis in the euro region receded and near term inflation risks persisted, according to minutes of the decision released today.

The World Bank said that growth in East Asia’s emerging nations will accelerate next year as China’s economy recovers, reducing the need for policy makers to cut interest rates.

Asia, U.S.

Developing East Asia will probably expand 7.5 percent in 2012 and 7.9 percent in 2013, the Washington-based lender said in a report today, raising the forecast for this year from an October prediction of 7.2 percent.

A report in the U.S. today may show housing starts fell to an 872,000 annual rate in November, while building permits, a proxy for future construction, probably rose to an 875,000 annual pace, according to Bloomberg surveys.

Optimism in Germany’s economic outlook is “well founded” because demand for the countries’ products outside Europe is increasing, Hans-Werner Sinn, Ifo’s president, told Maryam Nemazee on Bloomberg Television’s “The Pulse.”

Bayerische Motoren Werke AG, the world’s biggest maker of luxury cars, said on Dec. 7 it targets higher sales and profit next year boosted by growth in the U.S. and China.

Daimler AG, another German luxury carmaker, is planning to almost double its 2011 car sales by 2020 by focusing on demand in China, Russia and the U.S., the company said Nov. 14.

“There are hopeful signs for the German economy,” said Natascha Gewaltig, head of European economics at Action Economics in London. “The current quarter looks pretty dismal for businesses but it looks like we will see stabilization next year.”

To contact the reporter on this story: Stefan Riecher in Frankfurt at sriecher@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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