German business and investor confidence has beaten forecasts every month this year, suggesting the strength of Europe’s largest economy may have been underestimated.
The Ifo institute’s business climate index, which today unexpectedly rose to a nine-month high, has beaten the median forecast in Bloomberg News surveys every month since September. An investor confidence index published by the ZEW Center for European Economic Research has exceeded the median estimate for the last five months.
“German companies taught nervous financial markets another important lesson today,” said Andreas Rees, an economist at UniCredit Group in Munich. “One should not underestimate the German economy and its resilience.”
The Ifo report and today’s U.K. retail data showing the fastest sales increase in more than a year add to evidence of strength in Europe after the debt crisis damped the region’s growth in the fourth quarter. In Germany, companies have increased sales to faster-growing markets in Asia, and unemployment at a two-decade low is bolstering household spending.
Germany’s leading economic institutes, including Ifo, yesterday raised their joint growth forecast for 2012 to 0.9 percent from 0.8 percent and predicted expansion of 2 percent in 2013, even as the debt crisis cripples euro-area peers. The Bundesbank in December forecast gross domestic product will increase 0.6 percent growth this year and 1.8 percent in 2013.
Munich-based Ifo said its index, based on a survey of 7,000 executives, rose for a sixth straight month to 109.9 from 109.8 in March. Economists predicted a drop to 109.5, according to the median of 40 estimates in a Bloomberg News survey.
“This level of the business climate is associated with growth in the order of 3 percent -- a rate that the economy is most unlikely to deliver anytime soon,” said Klaus Baader, senior economist at Societe Generale SA in Hong Kong, who forecasts 0.7 percent growth for Germany this year. “Still, the survey suggests the contraction in fourth-quarter GDP, and what is likely to be a pretty lackluster first quarter, are likely to be temporary.”
Ifo said a gauge of executives’ expectations was unchanged at 102.7, while a measure of the current situation rose to 117.5 from 117.4. Economists forecast both would fall. The euro jumped more than a quarter of a cent to $1.3180 after the report and the Stoxx Europe 600 Index rose 0.4 percent.
“Today’s Ifo index paints a too positive picture of the growth prospects for the German economy,” said Carsten Brzeski, senior economist at ING Group in Brussels. “With austerity-driven slowdowns coming to most other core euro-zone countries, an obvious cooling of the Chinese economy and a still not very dynamic U.S. recovery, export growth should clearly come down.”
ZEW’s index of investor sentiment also bucked expectations and rose to a two-year high this month. Improving confidence hasn’t been reflected in official data so far. Germany’s manufacturing sector contracted in March for the first time in three months and retail sales have dropped each month this year.
“Hard data releases for retail sales and industrial output in February came in on the weak side,” said Evelyn Herrmann, an economist at BNP Paribas in London, who nevertheless expects German growth of 1.2 percent this year. The Ifo and ZEW surveys “confirm that confidence in the capacity for the German economy to weather the euro-zone crisis well remains unbroken,” she said.
U.K. retail sales rose 1.8 percent last month from February as the warmest March for half a century boosted purchases of clothing and gardening products and panic buying lifted auto-fuel demand, the Office for National Statistics said today.
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 Spain 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.”
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.
German corporate tax revenue grew 22 percent in March from a year earlier as businesses benefited from stronger export growth and consumer demand, the Finance Ministry said today.
Unemployment dropped to 6.7 percent in March and unions are winning some of the biggest pay increases for workers in two decades.
Today’s Ifo numbers “are dazzling,” said Jens Kramer, an economist at NordLB in Hanover. “The German economy is standing on robust feet. The recovery is extremely broad-based.”
Elsewhere today, Australian export and import prices fell, and Malaysian inflation slowed. Australia’s export prices dropped 7 percent in the first quarter from the previous period, the biggest decline in more than a year. Import prices for the same period also fell 1.2 percent, the statistics bureau announced today.
Malaysia said the rise in consumer prices slowed in March to 2.1 percent from a year earlier after a 2.2 percent in February.
Canada will announce today that inflation slowed in March to 2 percent from 2.6 percent, according to the median estimate from a survey of 25 economists. Mexico may say that unemployment for March fell to 4.7 percent, according to a survey by Bloomberg News.