German Business Confidence Seen Increasing on Recovery

German business confidence probably increased in June amid signs that a recovery in Europe’s largest economy is gathering pace.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, will rise to 105.9 from 105.7 in May, according to the median of 46 forecasts in a Bloomberg News survey. Ifo releases the report at 10 a.m. in Munich today.

The German economy expanded 0.1 percent in the first quarter of this year after shrinking 0.7 percent in the final three months of 2012. Investor confidence gained this month and industrial production jumped the most in more than a year in April. The Bundesbank last week said economic growth will show a significant acceleration in the second quarter, while warning of signs of a slowdown later in the year.

“Compared with the rest of Europe, Germany’s economy is pretty strong and will remain solid for the rest of the year,” said Jens Kramer, an economist at NordLB in Hanover. “What worries me are signs of weakness from China. If this leads to a global slowdown, Germany as an export-oriented nation will surely suffer.”

Ifo’s measure of executives’ expectations probably rose to 102 from 101.6 in May, while a gauge of the current situation may have slipped to 109.6 from 110, the survey shows.

Cash Crunch

Manufacturing in China is shrinking at a faster pace this month, a preliminary reading of the Chinese Purchasing Manager’s Index showed last week. At the same time, the nation’s money market has suffered a two-week cash crunch that will test the management skills of new Communist Party leaders saddled with risks from a record credit expansion under their predecessors.

German exports rose 1.9 percent in April from March, beating economists’ estimates in a Bloomberg survey, data from the Federal Statistics Office in Wiesbaden showed this month. European Central Bank President Mario Draghi said on June 6 in Frankfurt that exports are a primary driver of growth for the 17-nation euro area.

Beiersdorf AG, the German maker of Nivea skin cream, on May 2 reported first-quarter profit that exceeded estimates as higher emerging-market sales countered a drop in western Europe.

The euro area is struggling to emerge from six quarters of contraction, its longest-ever recession. The ECB expects the 17-nation currency bloc to shrink 0.6 percent this year before expanding 1.1 percent in 2014. Recent economic-survey data are showing “some improvement, but from low levels,” Draghi said on June 18 in Jerusalem.

Growth Forecast

The Bundesbank on June 7 cut its projections for Germany, predicting that Europe’s largest economy will expand 0.3 percent in 2013 and 1.5 percent next year, down from earlier forecasts of 0.4 percent and 1.9 percent. Signs of a slowdown in the summer months are emerging, the central bank said June 17 in its monthly report.

Puma SE, Europe’s second-largest maker of sporting goods, cut its revenue and profit forecasts for this year on May 14 after reporting first-quarter earnings that trailed analysts’ estimates, citing a “challenging” business environment in Europe and disappointing sales in China.

German new car sales resumed a decline in May, after increasing in April for the first time this year, the German Federal Motor Vehicle Office said on June 4. Registrations fell 9.9 percent from a year earlier to 261,316 vehicles.

Improving Confidence

Still, Daimler AG Chief Executive Officer Dieter Zetsche said on June 12 that earnings have improved in the second quarter as new models win buyers and the Mercedes-Benz car unit reduces costs faster than anticipated.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, increased to 38.5 from 36.4 in May.

German consumer confidence will jump to the highest level in more than 5 1/2 years this month, GfK AG said May 24, citing the market research company’s sentiment survey of about 2,000 people.

“Germany’s economy is performing pretty well considering the headwinds it’s facing,” said Ulrike Kastens, senior economist at Sal. Oppenheim Group in Cologne.

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