German Business Confidence May Gain for a Third Month

German business confidence probably increased for a third month 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, will rise to 103 from 102.4 in December, according to the median forecast of 41 economists in a Bloomberg News survey. That would be the highest since July. Sentiment dropped to a 2 1/2 year low in October. Ifo releases the report at 10 a.m. in Munich today.

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.

“The risks for the German economy are on the upside for the first time in a long time,” said Frederik Ducrozet, senior euro-area economist at Credit Agricole in Paris. “Of course, there is some catching up from a low level after a very weak fourth quarter, but we also see fundamental improvements that give hope for this year.”

Ifo’s measure of executives’ expectations probably rose to 98.5, the highest since May, from 97.9 in December, while a gauge of the current situation may have increased to 107.3 from 107.1, the survey shows.

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.

Stocks Rally

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.

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.

“The fourth quarter was pretty bad, both in Germany and the euro area,” said Jens Kramer, an economist at NordLB in Hanover. “The tables will turn now. There is no danger of a recession in Germany. I expect solid growth from the beginning of this year.”

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