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German Business Confidence Gains Third Consecutive Month

German Business Confidence Gained for a Third Month in January
Robert Bosch GmbH, the world’s biggest car-parts maker, said on Jan. 23 it will hold back on investments this year as the recession in Europe caused profitability in 2012 to miss targets. Photographer: Simon Dawson/Bloomberg

German business confidence rose more than economists forecast in January, adding to signs that Europe’s largest economy is recovering from a slump at the end of last year.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 104.2 from 102.4 in December. That’s the highest since June and the third straight gain. Sentiment dropped to a 2 1/2 year low in October. Economists predicted an increase to 103, according to the median of 41 forecasts in a Bloomberg News survey.

The Bundesbank said this week there are indications that the economy is already rebounding from a contraction in the final quarter of 2012, even as the sovereign debt crisis curbs demand in Germany’s euro-area trading partners. Investor confidence jumped to the highest since May 2010 this month and a gauge of activity in service industries rose to a 19-month high.

“Today’s Ifo index nicely illustrates the green shoots in the German economy,” said Carsten Brzeski, an economist at ING Group in Brussels. “Even if the current harsh winter weather delays the blossoming somewhat, growth should return, leaving the contraction of the fourth quarter quickly behind.”

Ifo’s gauge of executives’ expectations rose to 100.5 from 98, while a measure of the current situation increased to 108 from 107.1. The euro advanced after the report and traded at $1.3430 at 10:13 a.m. in Frankfurt, up 0.4 percent today.

Economic Slowdown

German growth slowed to 0.7 percent in 2012 from 3 percent in 2011, the Federal Statistics Office said last week. It estimates gross domestic product may have dropped as much as 0.5 percent in the fourth quarter from the third.

While the government forecasts expansion of just 0.4 percent in 2013, the country’s DSGV savings banks association yesterday struck a more optimistic note. Germany’s small and medium-sized companies, which generate about half its GDP, will increase investment this year and growth should be stronger than some predict, DSGV President Georg Fahrenschon said.

SAP AG, the biggest maker of business-management software, this week forecast a gain of at least 12 percent in full-year earnings, pushing up its share price.

The benchmark DAX stock index has rallied about 17 percent since European Central Bank President Mario Draghi pledged on July 26 to do whatever is needed to preserve the euro. Draghi said this week that the “darkest clouds” of the crisis have lifted.

‘Crisis Mode’

Still, with the 17-nation euro area in its second recession in four years, the debt crisis is “far from over,” German Chancellor Angela Merkel said in her New Year’s speech.

Belgian business confidence, which some economists consider a bellwether for the euro area, unexpectedly fell in January for the first time in three months, the National Bank of Belgium said yesterday.

The euro economy probably stagnated in the first quarter after a 0.4 percent contraction in the previous three months, according to the median of 26 economists’ forecasts in another Bloomberg survey. It shrank 0.1 percent in the third quarter of 2012 and 0.2 percent in the second.

Germany exports about 40 percent of its products to the euro region.

Robert Bosch GmbH, the world’s biggest car-parts maker, said on Jan. 23 it will hold back on investments this year as the recession in Europe caused profitability in 2012 to miss targets.

“It is true that the risk of a euro-area break up has been contained and that we may see a recovery at some point,” said Andreas Moeller, an analyst at WGZ Bank in Dusseldorf. “But this may take a long time. For now, Europe’s economy is still in crisis mode.”

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