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German Business Confidence Unexpectedly Increases (Update3)
2010-08-25 11:44:42.896 GMT
(Updates with economist's comment in ninth paragraph.)
By Gabi Thesing
Aug. 25 (Bloomberg) -- German business confidence
unexpectedly rose to a three-year high in August, suggesting the
economy may not lose as much momentum as some economists
forecast after expanding at a record pace in the second quarter.
The Munich-based Ifo institute said its business climate
index, based on a survey of 7,000 executives, increased to 106.7
from 106.2 in July. That's the third straight monthly increase
and the highest level since June 2007. Economists expected a
drop to 105.7, according to the median of 36 forecasts in a
Bloomberg News survey.
Europe's largest economy expanded 2.2 percent in the three
months through June, the fastest pace in two decades, as
companies including luxury carmaker Daimler AG ramped up
production to fill booming export orders. The Bundesbank said
last week the economic situation is "very favorable." Still,
budget cuts across the 16-nation euro region and a slowing
global recovery may crimp demand for German goods and damp
growth in the second half of the year.
Today's Ifo report is "an astonishingly strong number,"
said Juergen Michels, chief euro-area economist at Citigroup Inc
in London. "While it has probably peaked at this stage, the
strong expectations component shows that companies believe in
the recovery and it's backed by real corporate activity."
The euro extended its gain after the report, rising to as
high as $1.2725 from $1.2689 beforehand and $1.2630 early this
morning in Frankfurt. It dropped to $1.2625 at 1:42 p.m.
Expectations
Ifo's measure of executives' expectations eased to 105.2
from 105.6, while the gauge of the current situation rose to
108.2 from 106.8. The Bundesbank last week raised its 2010
growth forecast to 3 percent from 1.9 percent. The economy
contracted 4.7 percent in 2009.
Evidence of slowing growth around the world is prompting
some investors to dash for the safety of bunds and other assets
seen as a haven. The yield on Germany's 10-year bund yesterday
dropped to a record low of 2.185 percent as U.S. stocks fell to
their lowest in seven weeks.
Exports and investment fueled Germany's second-quarter
growth. Foreign sales soared 8.2 percent in the quarter and
company investment in plant and machinery jumped 4.4 percent.
Private consumption rose 0.6 percent.
"Germany may be entering a period of self-sustaining
domestic demand growth," Jim O'Neill, Goldman Sachs Group Inc.
Chief Global Economist, said in an interview with Bloomberg
Television today. "If that were true, it would be of major
importance for the rest of Europe."
Rising Sales
HeidelbergCement AG, the world's largest maker of
aggregates used to produce concrete and asphalt, said July 30
that sales rose for the first time in six quarters. Chief
Executive Officer Bernd Scheifele said revenues and operating
income will rise this year.
Companies are also adding workers to help fill orders,
helping to push down unemployment for a 13th month in July. The
jobless rate declined to 7.6 percent.
Daimler, which raised its 2010 operating forecast on July
27, has hired 1,800 temporary workers, while Bayerische Motoren
Werke AG has added 5,000 temporary workers. That may boost
consumer spending and help offset weakening foreign demand as
the global recovery shows signs of running out of steam.
Stiglitz Warning
Shares fell around the globe yesterday after an industry
report showed a record plunge in U.S. home sales in July, adding
to evidence the world's biggest economy is stumbling. Growth in
China's manufacturing industry has also weakened.
Expansion in Europe's services and manufacturing industries
cooled this month as austerity measures in the region's most
indebted countries weighed on spending. Nobel Prize-winning
economist Joseph Stiglitz said in an interview broadcast
yesterday that budget cuts may push the euro area, Germany's
biggest export market, back into recession.
"German order books are still full and domestic demand is
picking up," said Alexander Koch, an economist at Unicredit
Group in Munich. "The economy will grow very solidly, just not
as fast as in the first half."
For Related News and Information:
Economic stories on Germany: NI GEECO BN <GO>
German economic statistics: ECST GE <GO>
Economic indicator watch: ECOW EU <GO>
Top economic stories: TOP ECO <GO>
German government bonds: PXGE <GO>
--Editors: Matthew Brockett, Simone Meier
To contact the reporter on this story:
Gabi Thesing in London at +44-20-7673-2153 or
gthesing@bloomberg.net
To contact the editor responsible for this story:
John Fraher at +44-20-7673-2058 or jfraher@bloomberg.net
