German business sentiment rises in June
German business confidence unexpectedly rose to a two-year high in June as the euro’s depreciation and a global economic recovery brightened the outlook for exports.
The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, increased to 101.8 from 101.5 in May.
That’s the highest since May 2008. Economists expected a decline to 101.2, according to the median of 38 forecasts in a Bloomberg News survey.
Governments across the 16-nation euro region are cutting spending after Greece’s near default sparked investor concern that budget deficits are spiraling out of control.
While tighter fiscal policy may damp economic growth, the crisis has also pushed the euro down 13pc against the dollar this year, boosting German exports outside the currency bloc.
“We’re in a period of very, very strong economic growth,” said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt. “Driven by foreign demand, the recovery will continue in the second half of the year -- albeit at a slower pace.”
Ifo’s measure of executives’ expectations declined to 102.4 from 103.7, while its gauge of the current situation increased to 101.1 from 99.4. The euro was little changed after the Ifo report at $1.2315.
The Bundesbank on June 11 raised its growth forecasts for Europe’s largest economy even as the government agreed to reduce spending by €80bn over the next four years.
The German central bank predicted expansion of 1.9pc this year and 1.4pc in 2011, up from 1.6pc and 1.2pc respectively.
“At the moment, it looks like Germany could become the engine for economic growth” in Europe, Ifo economist Gernot Nerb said in a Bloomberg Television interview. “Investment is picking up and giving some additional momentum.”
Volkswagen, Europe’s largest carmaker, said last week operating profit and deliveries may rise “significantly” this year as demand increases in major markets and the euro’s decline against the dollar helps sales abroad.
Germany’s benchmark DAX share index has rallied 11pc in the past month and is up almost 6pc this year.
Still, German investor confidence plunged this month on concern that the sovereign debt crisis will undermine demand for the country’s good within the euro area, its biggest export market.
“The Europe-wide consolidation efforts have certainly damped companies’ outlook,” said Joerg Lueschow, an economist at WestLB AG in Dusseldorf.
“Economic growth will weaken around year-end after very strong second and third quarters.”