German Business Confidence Increases Less Than ForecastJeff Black and Stefan Riecher
German business confidence rose less than economists forecast in September amid caution over the recovery in the euro area, the nation’s biggest trading partner.
The Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 107.7 from a revised 107.6 in August. That compares with a median forecast of 108 in a Bloomberg News survey of 43 analysts. The gauge has still gained for five months to its highest level since April 2012.
Germany is benefiting from unemployment near a two-decade low and the end of the euro area’s longest-ever recession. That helped Chancellor Angela Merkel’s Christian Democrats take the largest share of the vote in Sept. 22 elections and set her up for a third term as leader. The European Central Bank has pledged to keep interest rates low to support what it calls a fragile euro-area recovery.
“The backdrop for German growth is favorable,” said Holger Schmieding, chief economist at Berenberg Bank in London. “The level of Ifo business confidence is well above its long-term average and compatible with our call for above-trend growth. The ECB’s monetary policy is gaining traction.”
A measure of the current situation unexpectedly dropped to 111.4 in September from 112 the prior month, today’s report showed. A gauge of expectations climbed to 104.2 from 103.3. The survey was conducted before Germany’s election, Ifo said.
The euro fell to $1.3484 at 4:10 p.m. Frankfurt time after trading as high as $1.3519 before the report. Germany’s DAX stock index was up 0.2 percent at 8,651, compared with a gain of 0.4 percent before the figures.
ECB President Mario Draghi has promised to keep official interest rates at or below current levels for an extended period of time. He said yesterday that the ECB is ready to use another longer-term refinancing operation if needed to curb market rates. The bank introduced two three-year LTROs starting in December 2011 to ease a credit crunch in Europe.
ECB officials including Vice President Vitor Constancio, Executive Board member Benoit Coeure and Governing Council members Ewald Nowotny and Erkki Liikanen said today that while the bank has several policy instruments available if needed, it isn’t committed to any particular measures.
“The confirmation of an extremely accommodative monetary policy stance is a key supportive factor for confidence,” said Annalisa Piazza, an analyst at Newedge Group in London. “Industrialists see a prolonged period of time of favorable financing in Germany where credit conditions are smooth and chances of pickup in activity.”
Hungary’s central bank cut its benchmark interest rate to a record low of 3.6 percent from 3.8 percent at a meeting Budapest today. Central bank President Gyorgy Matolcsy said Sept. 11 that “loose” monetary policy in developed countries and a plan to boost corporate lending in Hungary are expanding rate setters’ room to maneuver.
German growth isn’t matching the pace of the second quarter when gross domestic product expanded 0.7 percent, according to the Bundesbank. Factory orders, industrial production and exports all declined in July, and a preliminary gauge of manufacturing for September unexpectedly dropped.
“At the start of summer 2013, the German economy didn’t sustain the rebound from earlier in the year,” the Frankfurt-based central bank said in its monthly report yesterday. “Company investment confirms the evidence of a solid foundation, though signs of a dramatic upswing are lacking.”
The Bundesbank predicts the German economy will expand 0.3 percent this year and 1.5 percent in 2014. Unemployment was at 6.8 percent in August.
The nation faces a period of coalition talks among its biggest political parties. Merkel approached Sigmar Gabriel, the chairman of the opposition Social Democrats, on the morning after she won the highest share of votes in a national election since Helmut Kohl in 1990. Gabriel said he didn’t take her first call at 9 a.m. They spoke at 11 a.m., he said, without specifying who called whom. Merkel’s traditional allies, the Free Democrats, were ousted from parliament.
The euro area is showing signs it’ll sustain its economic recovery. A gauge of services, based on a survey of purchasing managers by London-based Markit Economics, climbed this month to the highest level in more than two years.
The region’s GDP expanded 0.3 percent in the three months through June, snapping six quarters of contraction. The ECB forecasts the 17-nation economy will shrink 0.4 percent in 2013 and grow 1 percent next year.
That adds to indications of a global recovery. Home prices in 20 cities in the U.S., the world’s biggest economy, rose in the 12 months through July by the most in more than seven years, data showed today. The S&P/Case-Shiller index of property values increased 12.4 percent from July 2012, matching the median projection of 31 economists surveyed by Bloomberg and the biggest year-to-year advance since February 2006.
Manufacturing in China, the second-biggest economy, is expanding in September at the fastest pace in six months, according to a preliminary Purchasing Manager’s Index released yesterday by HSBC and Markit Economics. U.K. mortgage approvals climbed in August, signaling the nation’s housing market is growing, data from the British Bankers Association in London showed today.
Germany’s Daimler AG, the world’s third-largest maker of luxury vehicles, said this month that it’s having trouble filling orders as August sales at an all-time high put premium-car manufacturers on course for record full-year deliveries.
“The recoveries of the U.S. and U.K. economies, signs that the Chinese landing is a soft rather than a hard one and the tender stabilization of the eurozone economy should support German exports,” said Carsten Brzeski, chief economist at ING-DiBa bank in Frankfurt. “Today’s Ifo provides further evidence that fears about a sharp slowdown of the German economy in the second half of the year were overdone.”