German business confidence increased more than economists forecast to a 15-month high in November, suggesting the economic recovery may gather pace next year.
The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, rose to 93.9 from 92 in October, the highest reading since August last year. Economists expected a gain to 92.5, according to the median of 37 forecasts in a Bloomberg survey. The index reached a 26-year low of 82.2 in March.
Economic growth accelerated in the third quarter as companies replenished inventories and rising export orders prompted factories to ramp up production. The manufacturing industry expanded for a second month in November and the country’s benchmark DAX share index has advanced 20 percent this year. Unemployment, the euro’s strength and the expiry of government stimulus measures may still damp growth in 2010.
Ifo’s “sharper than expected rise” is “another encouraging sign that the economy continued to expand in the fourth quarter,” said Jennifer McKeown, an economist at Capital Economics Ltd in London. “We expect Germany to lead the euro- zone recovery.”
Ifo’s gauge of the current situation increased to 89.1 from 87.4 while an index of executives’ expectations advanced to 98.9 from 96.8.
The euro rose to $1.4936 after the report from $1.4919. The yield on German two-year bonds added one basis point to 1.35 percent.
GDP Breakdown
The Economy Ministry last month raised its economic outlook, forecasting growth of 1.2 percent in 2010 after a 5 percent contraction this year.
Gross domestic product rose 0.7 percent in the third quarter from the second, the Federal Statistics Office in Wiesbaden said today in a detailed report, confirming an initial estimate. Re-stocking added 1.5 percentage points to GDP and investment in plant and machinery contributed 0.1 percentage point.
“It looks like the German economy is on the path to recovery,” Ifo economist Gernot Nerb said in a Bloomberg Television interview. “This time it was particularly the manufacturing industry that showed improvement in the business climate.”
‘Trend Reversal’
Germany’s Beiersdorf AG, the maker of Nivea products, on Nov. 3 raised margin forecasts after reporting third-quarter profit that beat analysts’ estimates, saying its tape-making Tesa unit is seeing a “trend reversal in its industrial business.”
Chancellor Angela Merkel’s government is spending about 85 billion euros ($127 billion) on measures to stimulate growth, including infrastructure projects and a 2,500-euro payment for people who junk an old car and buy a new one. The so-called cash-for-clunkers fund ran dry in September.
“Growth so far has been propped up by stimulus,” said Costa Brunner, an economist at Natixis in Frankfurt. “There’s not a self-supporting recovery, and the stimulus will run out. We see a W-shaped recovery, and a recession in the second half of 2010 isn’t out of the question.”
German investor confidence declined more than economists forecast this month. A rebound in French business confidence also stalled as manufacturers grew more concerned that the end of stimulus measures will slow gains in consumer spending and the euro’s gains will hurt sales abroad.
Exports, the motor of German economic expansion this decade, have so far weathered the euro’s 20 percent appreciation against the dollar since mid-February.
“Incoming orders are robust and the current situation looks good, even though the economic dynamic will weaken as fiscal and monetary stimulus measures expire,” said Jens Oliver Niklasch, an economist at Landesbank Baden-Wuerttemberg in Stuttgart. “The end of the world was canceled.”
Source: Bloomberg.
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