Feb. 21 (Bloomberg) -- German business confidence unexpectedly rose to a fresh record high in February as booming exports spurred hiring and consumer spending.
The Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, increased to 111.2 from 110.3 in January. That’s the highest since records for a reunified Germany began in 1991. Economists predicted the index would hold steady, according to the median of 38 forecasts in Bloomberg News survey.
The German economy is driving euro-region growth after demand from faster-growing economies such as China boosted exports, fueling company investment and helping push unemployment to the lowest in almost two decades. At the same time, sales to countries such as Ireland, Greece, Portugal and Spain may wane as they cut spending to rein in budget deficits during a sovereign debt crisis. The German government expects Europe’s largest economy to expand 2.3 percent this year after record growth of 3.6 percent in 2010.
“The start to the New Year could hardly have been better,” said Carsten Brzeski, an economist at ING Groep in Brussels. “The economy might not reach the stars, but it will continue to fly high this year.”
The euro rose after the Ifo report before easing to trade little changed at $1.3679 at 11:44 a.m. in Frankfurt.
Ifo’s gauge of the current situation climbed to 114.7 from 112.8 in January, while an index measuring executives’ expectations gained to 107.9 from 107.8.
German investor confidence increased for a fourth month in February and the benchmark DAX stock index has gained almost 20 percent in the past six months.
Growth in Europe’s service and manufacturing industries accelerated to the fastest pace in more than four years in this month, led by stronger output in Germany. A composite index based on a survey of euro-area purchasing managers in both industries rose to 58.4 from 57 in January, London-based Markit Economics said in an initial estimate today.
“February’s euro-zone PMI and German Ifo surveys suggest that the euro-zone and German economies have started the year with a bang,” said Ben May, an economist at Capital Economics Ltd. in London.
Germany’s Infineon Technologies AG, Europe’s second-largest chipmaker, this month raised its full-year sales forecast. “Infineon is firing on all cylinders,” Chief Executive Officer Peter Bauer told shareholders on Feb. 17. “The volume of orders is excellent, providing plenty of fuel for the coming quarters.”
Bayerische Motoren Werke AG, the world’s largest maker of luxury cars, said on Feb. 4 it expects “significant” sales increases in the first half of this year on demand in Asia and the U.S. Daimler AG, the world’s second-largest maker of luxury vehicles, plans to invest more than 20 billion euros in new models and factory upgrades in the next two years.
Ifo President Hans-Werner Sinn said the surge in company investment in Germany is “unprecedented.”
“Of course it cannot continue forever,” Sinn said in an interview with Bloomberg Television. “There must be some ceiling, but I honestly don’t know where it is.”
Demand from within the euro area, Germany’s biggest export market, may suffer as governments from Spain to Ireland struggle with the debt crisis. Euro-region growth will ease to 1.5 percent this year from 1.7 percent in 2010, the European Central Bank forecast in December.
“Sentiment in the German economy will weaken somewhat during spring,” said Juergen Pfister, chief economist at Munich-based lender Bayerische Landesbank. “Given the euphoric mood, further improvements are hardly possible.”
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