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German Business Confidence May Decline to Near 3-Year Low

German Business Confidence Probably Fell to a 34-Month Low
While German growth slowed less than forecast in the third quarter, the euro area, Germany’s largest trading partner, slipped into recession and the outlook for the global economy has dimmed. Photographer: Simon Dawson/Bloomberg

German business confidence probably fell to the lowest in almost three years in November as a recession in the euro area damped growth in Europe’s largest economy.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, will fall to 99.5 from 100 in October, according to the median forecast of 48 economists in a Bloomberg News survey. That would be the seventh straight decline and the lowest reading since January 2010. Ifo releases the report at 10 a.m. in Munich today.

While German growth slowed less than forecast in the third quarter, the euro area, Germany’s largest trading partner, slipped into recession and the outlook for the global economy has dimmed. That’s making companies more cautious, even after the European Central Bank’s announcement of a new bond-purchase program eased financial-market concerns about the sovereign debt crisis and a potential break-up of the monetary union.

“While financial markets have calmed down, German companies don’t fully trust the lull and are holding back on investment,” said Christian Schulz, an economist at Berenberg Bank in London. “Because of the general global economic weakness, there’s also a risk that the German economy will stagnate or even shrink in the fourth quarter.”

Ifo’s measure of executives’ expectations probably fell to 93, the lowest since May 2009, from 93.2 in October, while a gauge of the current situation may have slipped to 106.3 from 107.3, the survey shows.

GDP Breakdown

German growth slowed to 0.2 percent in the third quarter from 0.3 percent in the second, the Federal Statistics Office confirmed today. Exports, household spending and construction were the main contributors to growth, while inventories and company investment in plant and machinery subtracted from it, a detailed breakdown shows.

“The economy is currently influenced by a streaky overall picture that is likely to continue to darken by the end of the year,” the Bundesbank said in its monthly report this week. “The uncertainties stemming from the sovereign-debt crisis are as much a concern as the mixed economic signals from other regions of the world.”

The world economy will grow 3.3 percent this year -- the slowest since the 2009 recession -- and 3.6 percent next year, the International Monetary Fund said Oct. 9, cutting its forecasts from 3.5 percent and 3.9 percent respectively. The Washington-based lender now sees an “alarmingly high” risk of a steeper slowdown, with a one-in-six chance of growth slipping below 2 percent.

French Downgrade

France, Germany’s largest individual export destination, lost its top credit rating at Moody’s Investors Services on Nov. 19. Moody’s cited France’s uncertain fiscal outlook and its “deteriorating economic prospects.”

Schaeffler AG, the roller-bearing maker that’s the biggest investor in car-parts manufacturer Continental AG, this week lowered its 2012 sales forecast because of weaker demand in Europe and Asia.

“We are forecasting a further decline in demand in the fourth quarter, which will result in a temporary adjustment to our capacities,” Chief Executive Officer Juergen Geissinger said. “We currently expect the volatile and challenging environment in key market sectors to continue.”

Draghi’s Plan

ECB President Mario Draghi on Sept. 6 unveiled details of plan to buy government bonds to fight speculation of a currency breakup and regain control of interest rates in the euro area. That’s boosted financial markets and helped to ease some concerns about the severity of the economic slowdown.

German consumer confidence will rise to a five-year high this month, according to market research company GfK, as rising wages and unemployment near a two-decade low outweigh economic concerns. The economy will expand 0.8 percent this year and next, the European Commission forecasts. By contrast, it predicts a 0.4 percent contraction in the euro area this year and growth of just 0.1 percent in 2013.

“Compared to its neighbors, Germany obviously remains the star performer,” said Nick Matthews, an economist at Nomura International in London. “In absolute terms, however, it’s not doing particularly well. There is just a general loss of momentum.”

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