German Business Confidence Rises With China Fears Subdued

German Business Confidence Looks Past China Concerns

German business confidence unexpectedly rose in August as companies brushed off concerns that China’s slowdown will drag on the nation’s economic growth.

The Ifo institute’s business climate index climbed to 108.3 from 108 in July. The median estimate was for a decline to 107.6, according to a Bloomberg survey of economists.

The Bundesbank said in its August monthly bulletin that Germany is poised for “solid” growth in the rest of the year. Domestic spending, bolstered by record-low unemployment and borrowing costs, could provide a bulwark against weakness in China, the nation’s third-biggest trading partner.

“Neither the Greek crisis nor the new Chinese uncertainties and stock-market turbulence have been able to dent German business optimism,” said Carsten Brzeski, chief economist at ING Diba AG in Frankfurt. “The German economic model has become much more balanced than critics have been complaining about.”

German overseas sales climbed 2.2 percent in the three months through June, according to data on Tuesday from the Federal Statistics Office in Wiesbaden. Private consumption rose 0.2 percent, while capital investment shrank 0.4 percent. The economy expanded 0.4 percent, matching an Aug. 14 estimate.

China, which devalued the yuan this month as it struggles to manage a slowdown, poses a risk as the country’s demand has been key for German companies in recent years. Germany’s trade deficit with China fell to the lowest this century in 2014 at about 5 billion euros ($5.8 billion). The gap has widened to 7.3 billion euros in the first half of 2015.

Stockmarket Decline

Chinese stocks plunged again on Tuesday to extend the steepest four-day rout since 1996, with investors concerned that the government is abandoning market-support measures. The Shanghai Composite Index has slumped 22 percent since Aug. 19.

Germany’s DAX Index has dropped 20 percent since reaching a record in April, entering a bear market on Monday. The index extended a rebound after the Ifo report and was up 3.2 percent at 11:48 a.m. Frankfurt time.

“What’s happening in China’s stock market surely is a reason for concern, but in our view it won’t hurt developments in Germany,” Vice Chancellor Sigmar Gabriel told reporters in the eastern city of Jena. “I believe the good economic development in Germany will continue.”

Manufacturing Pickup

The Ifo report comes after Markit Economics said on Friday that German manufacturing growth accelerated to the fastest pace in more than a year this month. The Bundesbank said this month that domestic demand will feature more strongly in the second half of the year.

The euro-area economy, which expanded 0.3 percent in the second quarter, may also offer support. A renewed decline in oil prices and massive monetary stimulus from the European Central Bank is helping the region recover from its longest-ever recession.

Ifo’s current-assessment index rose to 114.8 in August from 113.9 in July, while a gauge of expectations dropped to 102.2 from a revised 102.3. The surveys cover about 7,000 companies in manufacturing, construction, wholesale and retail.

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