German Ifo Index Probably Fell as Winter Chilled RecoveryJeff Black
German business confidence probably fell for a second month in April after winter weather hindered the recovery in Europe’s largest economy.
The Ifo institute’s business climate index, based on a survey of 7,000 executives, will fall to 106.2 from 106.7 in March, according to the median of 44 forecasts in a Bloomberg News survey. Ifo releases the report at 10 a.m. in Munich today.
A gauge of industrial output signaled contraction after the coldest March in 25 years dragged on German growth, raising the risk that the economy fell into a recession. European Central Bank President Mario Draghi said on April 19 he hasn’t seen any improvement in economic data in the region as a whole, after hinting at the beginning of the month he might cut interest rates if the recovery faltered.
“While it’s too soon to declare it, there’s still the possibility of a technical recession due to the effects of the weather,” said Carsten Brzeski, senior economist at ING Belgium SA in Brussels. “I’m still penciling in very slight growth for the first quarter on the back of stable consumption. An ECB rate cut would help, via a weaker euro.”
A measure of German manufacturing based on a survey of purchasing managers fell to 47.9 from 49 in March, while a composite indicator for factory and services output in the euro area contracted for a 15th straight month. The German economy shrank 0.6 percent in the fourth quarter.
German investor confidence, as measured by ZEW, declined more than forecast in April, as political turmoil in Italy and a bailout in Cyprus threatened to derail an economic recovery.
The ECB predicts the euro-area economy, Germany’s largest export market, will contract 0.5 percent this year before expanding 1 percent in 2014. By contrast, the Bundesbank forecasts German growth of 0.4 percent this year and 1.9 percent next year.
Bundesbank President Jens Weidmann said on April 13 that he “doesn’t share the pessimism” of those predicting stagnation in the domestic economy. The ECB will only cut interest rates if economic data worsen, he said last week.
Many German companies are compensating for falling sales in Europe by exporting to faster-growing markets like Asia and the U.S.
Robert Bosch GmbH, Europe’s biggest car-parts maker, predicts 2013 sales will increase as much as 4 percent as growth outside the region makes up for a recession in its home market. First-quarter sales were “subdued,” mainly because of the deteriorating economy in Europe, the company said on April 18.
Volkswagen AG, Europe’s largest automaker, plans to expand its model line-up 29 percent by 2015 in China. The company will offer 90 cars, sport-utility vehicles, vans and heavy trucks in the country compared with 70 models now, Jochem Heizmann, who runs the carmaker’s Chinese operations, said on April 19 at a Shanghai press conference.
Still, evidence of an economic slowdown in China is mounting, with a preliminary reading of a purchasing managers’ index released by HSBC Holdings Plc and Markit Economics yesterday falling to 50.5 from 51.6 in March.
“Global economic growth seems to be losing some pace going into the second quarter,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. For Europe, “we see an excruciatingly slow recovery starting to take shape in the second half of the year as global growth gains pace and fiscal consolidation begins to ease.”