German Business Sentiment May Reach Eight-Month High

German business confidence probably rose to an eight-month high in February, adding to signs that Europe’s largest economy is gathering strength.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, will climb to 104.9 from 104.2 in January, according to the median of 38 forecasts in a Bloomberg News survey. That would be the fourth straight gain. Ifo releases the report at 10 a.m. in Munich today.

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 advanced 10 percent in the past three months.

“Early indicators signal that the German economy is on a relatively reliable upward trend and that momentum is returning,” said Jens Kramer, an economist at NordLB in Hanover. “We might see respectable growth in the first quarter.”

Ifo’s measure of executives’ expectations probably rose to 101.4 from 100.5 in January, while a gauge of the current situation may have climbed to 108.5 from 108, the survey shows.

Germany’s fourth-quarter contraction was caused by a 2 percent drop in exports and a 0.7 percent decline in company investment, the Federal Statistics Office said in a detailed breakdown of gross domestic product today.

Euro-Area Contraction

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 strengthening. 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.

“Hard data, especially industrial production, will catch up with expectations in the coming months,” said Anatoli Annenkov, senior economist at Societe Generale in London. “I’m confident about a rebound in the first quarter. But the lingering question for thereafter is how weak the development in Italy and Spain will be and how much it will drag down the German economy.”