German Business Confidence Unexpectedly Rises On Outlook

German business confidence unexpectedly rose in April, signaling optimism that Europe’s largest economy will withstand risks from tension in Ukraine to price weakness in the euro area.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, advanced to 111.2 from 110.7 in March. Economists predicted a decline to 110.4, according to the median of 34 estimates in a Bloomberg News survey.

German manufacturing and services activity is expanding at near the fastest pace since 2011 as the country leads a recovery in the 18-nation euro area. At the same time, the European Central Bank has pledged to add stimulus if needed to counter threats to regional growth that include low inflation and Russia’s territorial dispute with Ukraine.

“The outlook for the economy remains bright on a general basis, and we don’t see movements that could immediately reverse sentiment,” said Alexander Koch, an economist at Raiffeisen Schweiz in Zurich. “But there are risks correlated with rising trade uncertainty with Russia because of the Ukraine crisis, and partly to slower dynamics in emerging markets.”

A measure of current conditions rose to 115.3 in April from 115.2 the prior month, Ifo said. A gauge of expectations climbed to 107.3, rebounding from the lowest level since October.

PMI Data

The euro gained 0.1 percent to $1.3837 at 10:25 a.m. Frankfurt time. Germany’s DAX stock index advanced 0.7 percent to 9,613.

The Ifo report follows purchasing managers indexes yesterday that showed German manufacturing and services strengthened this month. A composite gauge by London-based Markit Economics rose to 56.3, near the February reading of 56.4 that was the highest since May 2011.

European car sales jumped more than 10 percent in March for a seventh consecutive monthly gain, according to the European Automobile Manufacturer’s Association. New vehicle registrations in Germany rose 6.6 percent, Federal Motor Vehicle Office data shows. Munich-based Bayerische Motoren Werke AG, the world’s largest maker of luxury vehicles, said on April 20 that all its factories globally are running at capacity.

Price Weakness

Even so, headwinds remain. Separate PMI reports by Markit yesterday also showed euro-area companies reduced output prices for a 25th straight month and Chinese manufacturing contracted for a fourth month. Russia, which had $89 billion of bilateral trade with Germany in 2012, faces further sanctions if its conflict with Ukraine escalates.

Euro-area inflation slowed to 0.5 percent in March, the weakest pace in more than four years. That threatens to undermine growth as households, companies and governments struggle to reduce their debt burdens. The ECB aims to return inflation to just under 2 percent.

ECB President Mario Draghi said on April 3 that officials are “resolute” in their determination to keep monetary policy loose and unanimous in their commitment to use unconventional instruments within the central bank’s mandate if needed.

The European Union’s statistics office is due to publish inflation data for this month on April 30 and the ECB will hold its next monetary-policy meeting on May 8 in Brussels. The Governing Council has kept its benchmark rate at a record-low 0.25 percent since November.

Pressure on the ECB to act increased today after the central bank reported a drop in excess liquidity in the euro-area financial system, according to Lyn Graham-Taylor, a strategist at Rabobank International in London. The measure declined to 92.9 billion euros ($129 billion), the lowest level since December 2011.