German February Business Confidence Jumps to 10-Month High

German business confidence rose more than economists forecast to a 10-month high in February, adding to signs that Europe’s largest economy is gathering strength.

The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, climbed to 107.4 from 104.3 in January. That’s the biggest increase since July 2010 and the fourth straight monthly gain. Economists predicted an advance to 104.9, according to the median of 38 forecasts in a Bloomberg News survey.

The Bundesbank said this week it expects the economy to return to growth in the current quarter after contracting 0.6 percent in the final three months of last year. Investor confidence jumped to the highest in almost three years in February and the benchmark DAX share index has gained 10 percent in the past three months.

“Nothing seems to be able to stop German business optimism,” said Carsten Brzeski, senior economist at ING Group in Brussels. “While most other euro-zone countries remain stuck in recessionary territory, preoccupied with structural reforms and austerity, German businesses are surfing on the wave of optimism.”

Ifo’s measure of executives’ expectations surged to 104.6, the highest since July 2011, from 100.6. A gauge of current conditions rose to 110.2 from 108.1. The euro appreciated a third of a cent after the report and traded at $1.3232 at 10:15 a.m. in Frankfurt.

German Strength

With Italy and Spain, the euro region’s third- and fourth-largest members, mired in recessions, the European Central Bank predicts the 17-nation economy will contract 0.3 percent this year. That compares with a Bundesbank forecast for 0.4 percent growth in Germany.

Euro-area services and manufacturing contracted at a faster pace than economists forecast in February, a report from London-based Markit Economics showed yesterday.

European Union car sales fell to the lowest level for a January in at least 23 years, the Brussels-based European Automobile Manufacturers’ Association said this week. MAN SE, the commercial-vehicle maker controlled by Germany’s Volkswagen AG, said on Feb. 8 it may slow investments and will work to cut spending as the region’s economic weakness hampers earnings.

‘Remarkable’ Improvement

Still, there are signs that the German economy is rebounding. Factory orders rose 0.8 percent in December, industrial production climbed for the first time in five months and exports rose. Unemployment fell for a second month in January, lowering the jobless rate to 6.8 percent.

Germany’s outlook “has improved relatively quickly and in remarkable fashion in the past three months,” the Bundesbank said in its monthly report this week. “For the first quarter of 2013 an expansion of overall economic output can be expected from today’s perspective. For the remainder of the year, a gradual economic recovery is on the cards.”

HeidelbergCement AG, the world’s third-largest maker of cement, on Feb. 7 reported fourth-quarter profit and sales that beat analysts’ estimates. SAP AG, the biggest maker of business-management software, last month forecast a gain in full-year earnings of at least 12 percent.

“Germany will be one of the strongest-growing countries in the euro area this year,” said Aline Schuiling, senior economist at ABN Amro Bank NV in Amsterdam. “We could see a strong rebound in the first quarter.”

(Updates with expectations gauge in fifth paragraph.)
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