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German Business Confidence in April May Drop on Crisis

German Business Confidence May Drop First Time in Six Months
Volkswagen AG, Europe’s largest carmaker, yesterday predicted a “very demanding” 2012 as the debt crisis threatens economic stability. Photographer: Jochen Eckel/Bloomberg

German business confidence probably declined for the first time in six months in April as the resurgent sovereign debt crisis threatens to curb growth.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, will drop to 109.5 from 109.8 in March, according to the median forecast of 40 economists in a Bloomberg News survey. Ifo releases the report at 10 a.m. in Munich today.

Europe’s largest economy contracted in the final quarter of last year as spending cuts across the euro region, its largest export market, damped demand for its goods. Germany may have avoided a recession as companies increased sales to faster-growing markets in Asia and unemployment at a two-decade low bolstered consumption at home.

“The German economy stabilized in the first quarter but the sovereign debt crisis is flaring up again and companies are getting reluctant to place orders,” said Aline Schuiling, senior economist at ABN Amro NV in Amsterdam. “Once the euro-area economy starts growing moderately from the middle of the year, domestic demand will pick up quite quickly in Germany.”

Ifo’s gauge of the current situation may have slipped to 117 from 117.4 and an index measuring executives’ expectations probably fell to 102.3 from 102.7, the survey of economists shows.

‘Upper Hand’

“Growth impulses in the German economy will win the upper hand” from mid-year, the country’s leading economic institutes said yesterday. They raised their growth forecast for 2012 to 0.9 percent from 0.8 percent and predicted expansion of 2 percent in 2013.

Investor confidence unexpectedly rose to a two-year high this month, the ZEW Center for European Economic Research said April 17, suggesting Germany can weather the debt crisis in the euro region’s periphery.

In Spain, where unemployment is approaching 24 percent as the economy contracts, the government is implementing the deepest austerity measures in three decades in an attempt to rein in its budget deficit. Investors are yet to be convinced that the country will deliver, sending Spanish 10-year yields above 6 percent earlier this week, approaching levels that drove Greece, Ireland and Portugal to seek bailouts.

Volkswagen AG, Europe’s largest carmaker, yesterday predicted a “very demanding” 2012 as the debt crisis threatens economic stability. Still, Chief Executive Officer Martin Winterkorn said he’s “convinced” the company “can approach the coming months with confidence.”

‘Remarkably Good’

European car sales dropped 6.6 percent to a 14-year low last month as deliveries in France and Italy tumbled by more than 20 percent. VW, which plans new factories in Mexico and western China, bucked the trend with a 1.7 percent gain.

The German economy is in “remarkably good shape” and should gather pace as falling unemployment fuels household spending, Bundesbank board member Andreas Dombret said April 17.

Unemployment dropped to 6.7 percent in March and unions are winning some of the biggest pay increases for workers in two decades. Factory orders rose 0.3 percent in February and exports unexpectedly increased for a second month, led by demand from outside Europe.

“There are good chances that the economy can leave behind the difficult winter months, pick up speed in spring and return to faster growth in the course of the year,” Economy Minister Philipp Roesler said yesterday. “Rising employment and positive income developments will make an important contribution.”

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