German Business Confidence May Improve as Economy Defies Crisis

German business confidence probably rose to the highest in almost a year in March, adding to signs that Europe’s largest economy will return to growth even as Cyprus inflames the region’s debt crisis.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, will climb to 107.8 from 107.4 in February, according to the median of 42 forecasts in a Bloomberg News survey. That would be the fifth straight gain and the highest reading since April last year. Ifo releases the report at 10 a.m. in Munich today.

With the European Central Bank threatening to cut off emergency funding for Cyprus’s banks unless it agrees to the terms of a European Union-led bailout, the tiny Mediterranean island has re-ignited concerns about the euro and roiled financial markets. Still, German investor confidence unexpectedly rose to a three-year high this month and the Bundesbank said the nation’s economic recovery remains on track.

“Confidence of German companies staged an impressive comeback in recent months” and “there are unambiguous signs of a strong recovery in German industry,” said Alexander Koch, an economist at UniCredit Group in Munich. “We see good chances that the latest German sentiment jump will soon be reflected in hard data and then increasingly lift other European countries.”

Improving Outlook

Ifo’s measure of executives’ expectations probably rose to 105 from 104.6 in February, while a gauge of the current situation may have increased to 110.5 from 110.2, the survey shows.

Some recent indicators have pointed to economic weakness.

A gauge of activity in Germany’s manufacturing industry, based on a survey of purchasing managers, unexpectedly fell below 50 this month, signalling contraction. Gauges of activity in the euro-area manufacturing and service industries also showed them shrinking at a faster pace than economists forecast.

The ECB lowered its projections earlier this month to predict the euro-area economy will contract 0.5 percent this year before growing 1 percent in 2014. By contrast, the Bundesbank estimates German growth of 0.4 percent this year and 1.9 percent next year.

Sales Growth

K+S AG, Europe’s largest potash maker, predicted on March 14 that earnings and sales will rise “slightly” this year.

Schaeffler AG, the industrial-bearing maker that’s the biggest investor in car-parts producer Continental AG, said yesterday that demand in North America and Asia will more than make up for a drop in Europe to allow revenue growth of about 4 percent in 2013.

Germany’s benchmark DAX share index is up more than 4 percent this year.

“Companies are beginning to be more positive about exports and orders and there’s room for even more improvement,” said Ulrike Rondorf, an economist at Commerzbank AG in Frankfurt. “If the revival of the debt crisis threatens planning certainty, it could potentially become a big risk for the economy. But at the moment, companies have hope that there’s a way around that.”

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