March 25 (Bloomberg) -- German business confidence fell less than economists forecast in March, suggesting Japan’s earthquake and higher borrowing costs may not damp growth in Europe’s largest economy.
The Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, declined to 111.1 from 111.3 in February, which was the highest reading since records for a reunified Germany began in 1991. Economists expected a drop to 110.5, according to the median of 39 forecasts in a Bloomberg News survey.
German investor confidence unexpectedly fell for the first time in five months in March after the European Central Bank said it may raise interest rates to curb inflation and Japan’s biggest earthquake on record caused a slump in global stocks. At the same time, Germany’s economy is booming as executives increase spending and hiring to meet export orders from emerging nations such as China.
“We can still expect very robust growth in Germany,” said Eckart Tuchtfeld, an economist at Commerzbank AG in Frankfurt. “Companies are now, however, taking an expected rise in interest rates into account.”
The euro rose after Ifo’s report before retracing, trading little changed at $1.4149 at 10:56 a.m. in Frankfurt.
Ifo’s gauge of the current situation rose to 115.8 from 114.8 in March, while an index measuring executives’ expectations declined to 106.5 from 107.9.
The Bundesbank predicts economic growth of 2.5 percent this year after a record 3.6 percent in 2010.
Germany’s benchmark DAX share index tumbled the most in 10 months last week after Japan’s March 11 earthquake and subsequent tsunami damaged cooling systems at an atomic power plant, causing the worst nuclear accident since Chernobyl in 1986.
Ifo President Hans-Werner Sinn said half of the responses to this month’s survey came in after the nuclear disaster unfolded, dragging down the expectations gauge. “In general, sentiment is fantastic,” he told Maryam Nemazee on Bloomberg Television’s “Countdown” from Munich today.
German companies including Deutsche Lufthansa AG and Bayerische Motoren Werke AG are projecting higher earnings.
BMW, the world’s largest maker of luxury vehicles, said on March 15 it aims to beat 2010’s record results this year.
Lufthansa said on March 17 that the company’s main airline brand will probably increase operating profit as spending reductions help make up for higher fuel costs caused by the jump in oil prices.
Overall, profits at German companies are headed for the highest level on record, with earnings at DAX-listed companies forecast to climb 19 percent in the next 12 months, according to more than 2,000 analyst estimates compiled by Bloomberg.
Still, shares in Metro AG, Germany’s largest retailer, slumped on March 22 after it said the global economic growth on which its forecasts depend may be curbed by events in Japan and political turmoil in the Middle East and North Africa.
The euro area is also struggling with a debt crisis that may force Portugal to become the third member nation to seek a bailout. Portuguese Prime Minister Jose Socrates tendered his resignation on March 23 after plans to cut the budget deficit were rejected by parliament.
“Germany will continue to have very respectable growth rates, even if it doesn’t quite perform as dynamically as it did before,” said David Milleker, chief economist at Union Investment GmbH in Frankfurt. “A small weakening in business confidence is not the end of the world.”
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