German Business Confidence Rises in Sign of Robust Economy

  • Ifo institute's index jumps to highest level in 17 months
  • Domestic demand is supporting growth even as exports slow

German business confidence unexpectedly rose in a sign that Europe’s largest economy is robust enough to weather risks including a global slowdown and Volkswagen AG’s emissions scandal.

The Ifo institute’s business climate index climbed to 109 in November, the highest level since June 2014, from 108.2 in October. The median estimate in a Bloomberg survey of economists was for the measure to stay unchanged. Ifo said the Paris terror attacks didn’t have a negative impact on the survey data.

German companies are battling to cope with a slowing global economy, the homegrown scandal at its biggest carmaker, a refugee crisis, and now a threat to euro-area consumer confidence after the Paris attacks and lockdown of Brussels. Even so, record-low unemployment and interest rates are supporting domestic demand, and more stimulus may be ahead as the European Central Bank considers whether to ease monetary policy further.

“The outlook for the German economy looks healthy,” Andreas Rees, an economist at UniCredit SpA in Frankfurt, said before Tuesday’s report. “We expect a rebound in growth at year-end.”

Higher Expectations

A gauge of the current economic condition in Germany also unexpectedly rose, to 113.4 in November from a revised 112.7 the previous month. A measure of expectations climbed to 104.7 from a revised 103.9.

The euro pared gains after the report and was up 0.2 percent at $1.0652 at 10:20 a.m. Frankfurt time. The DAX Index of German stocks was down 0.8 percent at 10,999.

Data earlier on Tuesday showed that German economic growth last quarter was led by domestic consumption as investment contracted and net trade dragged.

Private spending increased 0.6 percent in the three months through September, according to data released Tuesday from the Federal Statistics Office in Wiesbaden. Exports rose 0.2 percent while imports jumped 1.1 percent, and capital investment shrank by 0.3 percent. The economy expanded 0.3 percent, matching a Nov. 13 estimate.

Volkswagen Scandal

The chief headwinds are emanating from an emerging-market slowdown, sparked by China as it tries to reduce its dependence on investment and exports. The nation was Germany’s third-largest trading partner last year.

Worsening the mood, the Volkswagen emissions scandal is still widening more than two months after its cheating became public. The U.S. Environmental Protection Agency and the California Air Resources Board are now probing Volkswagen, Audi and Porsche models with 3.0-liter diesel engines as far back as the 2009 model year, after initially focusing on newer versions.

Even so, economic activity in Germany picked up this month, with a gauge of services at the highest level since September 2014 and a measure of manufacturing also advancing, a survey by London-based Markit Economics showed on Monday. The ZEW index of investor confidence rose in November for the first time in eight months.

“We do not expect Germany’s economic growth to swing out in one or the other direction from the current trend of steady but unspectacular,” said Johannes Gareis, an economist at Natixis SA in Frankfurt. “Thanks to a stabilization of global growth, the lower euro and improving financing conditions on the back of a further easing of the ECB’s monetary-policy stance in December, we believe that Germany’s hard data will improve rather than deteriorate.”

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