Business World

Thursday 22 March 2018

German business confidence unexpectedly rises

German business confidence unexpectedly rose to the highest level in more than three years in September, suggesting companies can weather weaker demand from abroad as the global economic recovery slows.

The Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, increased to 106.8 from 106.7 in August.

That’s the highest since June 2007. Economists had expected a drop to 106.4, according to the median of 36 forecasts in Bloomberg News survey.

Europe’s largest economy expanded at the fastest pace in two decades in the second quarter as companies ramped up production to fill booming export orders.

While data indicate a loss of momentum since then, the Bundesbank this week said the recovery “remains intact” as companies including truck maker MAN SE raise profit forecasts and falling unemployment boosts private consumption.

“The recovery has broadened,” said Joerg Lueschow, an economist at West LB in Dusseldorf. “Domestic demand has caught up and will compensate for a slower export dynamic. Still, an increase in business confidence is a huge surprise because recent data didn’t suggest it.”

The euro rose half a cent after the report to $1.3364. It has gained more than 5pc against the dollar in the last two weeks.


Ifo’s gauge of the current situation jumped to 109.7, the highest since May 2008, from 108.2. Still, a measure of executives’ expectations fell to 103.9 from 105.2.

German factory orders unexpectedly declined in July and manufacturing activity eased for a second month in September.

Weaker growth and low inflation in the US prompted the Federal Reserve to signal this week that it may embark on a second wave of unconventional monetary stimulus to support a recovery.

Expansion in the world’s largest economy will ease to 2.5pc next year from 2.7pc this year, according to another survey of economists.

The Bundesbank predicts Germany’s economy, Europe’s largest, will grow 3pc this year after it expanded 2.2pc in the second quarter.

German companies are looking east to boost profits. SAP AG’s co-Chief Executive Officer Bill McDermott said on Sepember 3 the software maker aims to make China “a second home” as local companies seeking management tools and real-time business intelligence will provide “limitless growth.”

Car exports

Bayerische Motoren Werke AG, the world’s largest maker of luxury cars, said on September 16 it plans to add models and start a vehicle-leasing business in China to help boost its presence in the world’s biggest auto market.

Car exports from Germany to China tripled in the first half of the year to 128,000, the Federal Statistics Office said on September 21. That exceeds the 122,000 cars shipped to China in 2009.

Germany’s strength contrasts with the weakness in some periphery euro-area countries that have been hit by the region’s sovereign debt crisis. Ireland’s economy shrank 1.2pc in the second quarter, a report showed yesterday.

The premium investors demand to hold Irish and Portuguese government bonds over their German equivalents rose to records this week.

Even as export growth slows, Germany’s recovery may be bolstered by rising consumer spending.

To help fill orders, companies are adding staff. Daimler, which raised its 2010 operating forecast on July 27, has taken on 1,800 temporary workers, while Volkswagen, Europe’s largest car maker, will offer permanent employment to 400 short- term hires.

Unemployment dropped for a 14th month in August, pushing consumer confidence to an 11-month high in September. Germany’s HDE retail association yesterday raised its 2010 sales growth forecast to 1.5pc from zero.

“We can assume that private consumption is falling into step as impulses from foreign trade are weakening,” said Jens Kramer, an economist at Nord LB in Hanover, Germany. “The economy is doing well. We won’t see an output slump.”


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