Aug. 27 (Bloomberg) -- German business confidence probably rose to the highest level in six months in August after the euro area, the nation’s biggest trading partner, emerged from its longest-ever recession.
The Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 107 from 106.2 in July, according to the median of 42 forecasts in a Bloomberg News survey. That would be the fourth straight increase and the highest reading since February. Measures of current conditions and expectations also gained, the survey shows.
Germany’s gross domestic product expanded 0.7 percent in the second quarter, beating estimates and helping the 17-nation euro area shake off six quarters of economic contraction. The country’s growth was led by private consumption and included the first increase in plant and machinery investment since 2011, signaling the recovery may be sustained.
“The trajectory for German GDP growth should remain upwards from here,” said Frederic Pretet, a strategist at Scotiabank Plc in London. “While the Ifo is not the earliest survey indicator to be released each month, it is a reliable measure. We expect the headline Ifo to follow the lead of ZEW and PMIs that surprised on the upside.”
German investor confidence increased more than economists predicted this month, according to the ZEW Center for European Economic Research. A purchasing managers index by Markit Economics showed the nation’s manufacturing climbed to the highest level in more than two years.
The Bundesbank predicts the German economy will expand 0.3 percent this year and 1.5 percent in 2014. GDP stagnated in the first three months of the year.
The euro area’s economy expanded 0.3 percent last quarter. The European Central Bank forecasts it will shrink 0.6 percent this year before growing 1.1 percent in 2014. The Frankfurt-based central bank will publish new projections on Sept. 5.
Henkel AG, the Dusseldorf, Germany-based maker of Loctite glue and Fa soap and deodorant, on Aug. 8 reported second-quarter profit that beat estimates, citing revenue growth at its laundry and home-care division in emerging markets. Hamburger Hafen & Logistik AG, the handler of about 80 percent of containers at Hamburg’s port, raised its 2013 volume forecast on Aug. 14 on growth in Asian and Baltic Sea traffic.
Some German companies are cutting costs amid lower demand from Europe. Salzgitter AG, Germany’s second-largest steelmaker, forecast a 2013 pretax loss on Aug. 5 and announced plans on Aug. 14 to shed more than 1,500 jobs.
“A lot of market participants were surprised by the strong economic performance in the euro zone,” Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt told Bloomberg TV yesterday. “I fear it’s unfounded and that the recovery in the euro zone will remain relatively weak.”
ECB President Mario Draghi said this month that he expects a gradual recovery in rest of the year and that the risks surrounding the outlook are still “on the downside.” The ECB cut its benchmark interest rate to a record low of 0.5 percent in May and Draghi repeated this month a July pledge to keep rates at current levels or lower for an extended period.
“Things are getting better and there’s reason to believe that the euro-area economy has bottomed out,” said Stefan Schneider, chief international economist at Deutsche Bank AG in Frankfurt. “But I do think that second-quarter growth in Germany was a bit over the top, partly due to catch-up effects. There will be a slowdown in the second half of the year.”
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