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German Business Confidence May Rise to Two-Year High

A Lamborghini Gallardo LP 570-4 Superleggera automobile
An employee cleans a Lamborghini Gallardo LP 570-4 Superleggera automobile at the Volkswagen AG (VW) annual shareholders' meeting in Hamburg, on April 22, 2010. Photographer: Michele Tantussi/Bloomberg

German business confidence probably rose to a two-year high in April as the global economic recovery boosted export demand and warmer weather allowed workers back onto construction sites.

The Ifo institute will say its business climate index, based on a survey of 7,000 executives, increased to 98.7 from 98.1 in March, according to the median of 37 forecasts in a Bloomberg News survey. That would be the highest reading since June 2008. Ifo releases the report at 10 a.m. in Munich today.

The International Monetary Fund this week raised its forecast for global growth in 2010 to 4.2 percent from 3.9 percent, saying the recovery has “evolved better than expected.” German exports are rising, manufacturing is expanding at a record pace, and the arrival of spring is buoying building activity and consumer spending.

“The economy will crank up in the second quarter,” said Jens Kramer, an economist at NordLB in Hannover, Germany. “The most important stimulus for the German economy is foreign demand. We were sucked into the swirl of recession very deeply; now we’re benefitting disproportionately from the global recovery.”

Ifo’s gauge of the current situation will increase to 95.3 from 94.4, while an index of executives’ expectations will rise to 102.1 from 101.9, the survey of economists shows.

Winter Break

The German economy, Europe’s largest, resumed expansion in the second quarter after the coldest winter in 14 years probably saw it contract in the first, the Bundesbank said on April 19. The government forecasts growth of 1.4 percent this year and 1.6 percent in 2011. The economy shrank 5 percent in 2009, the most since World War II.

This week Volkswagen AG, Europe’s largest automaker, said first-quarter profit almost doubled as sales in China and at its Audi luxury brand jumped to records. Daimler AG, the world’s second-biggest maker of luxury cars, raised profit forecasts for its Mercedes-Benz and truck units after reporting better-than-expected earnings for the three months through March.

A measure of German manufacturing growth by Markit Economics this month rose to the highest level since the index was created in 1996. German investor confidence also surged in April as falling unemployment and a weaker euro improved economic prospects.

The single European currency has dropped 12 percent in the past five months, partly because of Greece’s budget crisis. That’s making German goods more competitive abroad. Exports soared 5.1 percent in February and factory orders from outside the euro area rose 2.9 percent. The euro fell below $1.33 yesterday after Moody’s Investors Service cut Greece’s credit rating. It traded at $1.3244 at 9 a.m. in Frankfurt today.

“Greece isn’t relevant as a trading partner and companies won’t run into any problems as a result of the country’s fiscal crisis,” said Joerg Lueschow, an economist at WestLB AG in Dusseldorf. “On the contrary, the euro has suffered as a result, and that’s boding well for Germany’s competitiveness.”

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