German Business Confidence Rises With Growth Signs

German business confidence rose for a second month in a sign that Europe’s largest economy is overcoming the weakness it hit earlier in the year.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, advanced to 105.5 in December from 104.7 in November, when it rose for the first time in seven months. That matches the median estimate of 38 economists in a Bloomberg News survey.

The Bundesbank has said the German economy is showing signs of strengthening after it effectively stagnated in the middle of the year and managed only a “modest start” to the fourth quarter. Even so, the recovery may come too late to be much help to the euro area, leaving the European Central Bank considering buying government bonds to stave off region-wide deflation.

“The second increase in the Ifo index strengthens the impression that Germany is leaving its economic trough behind,” said Heinrich Bayer, an economist at Deutsche Postbank AG in Bonn. “The domestic economy is still on a growth path and the burden and insecurity coming from the external economy are somewhat less relevant.”

A gauge of current conditions in Germany was unchanged at 110 in December, today’s report showed. An index of expectations climbed to 101.1 from a revised 99.8.

The DAX Index of stocks was up 1.8 percent at 9,715 at 10:23 a.m. Frankfurt time. The euro was little changed at $1.2321.

Russia Risk

German investor confidence also rose for a second month in December, a separate index showed this week. Neubiberg, Germany-based chipmaker Infineon Technologies AG has predicted 2015 sales will rise by between 6 percent and 10 percent, driven by orders for autos, power management, chip cards and security.

At the same time, purchasing managers indexes showed German private-sector growth slowed to the weakest in 18 months. Munich-based MAN SE, Europe’s third-biggest truckmaker, has said it’ll seek to cut hours worked after a drop in orders, according to Sueddeutsche Zeitung.

A financial crisis in Russia poses a further risk. The ruble has lost around half of its value since June amid a slide in the price of oil and international sanctions over the Ukraine crisis.

In a sign that the effects are spreading beyond Russia’s borders, Switzerland today said it’ll introduce a negative deposit rate to stave off inflows from investors seeking a safe place to park their funds.

Oil Slump

While the Bundesbank has predicted German households and companies will benefit from a plunge in oil prices, the same decline is proving a concern at the ECB. Lower energy costs are poised to take the inflation rate negative in coming months, sparking fears that a deflationary spiral could take hold in the currency bloc’s fragile economy.

ECB President Mario Draghi said this month that staff will prepare a quantitative-easing package for consideration at the Jan. 22 policy meeting.

“There is a body of evidence now that we are heading for a moderate recovery rather than renewed recession,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “But this will be too slow to get inflation up where the ECB wants it to be.”

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