European News

25, Jan 2012.

German business confidence probably rose to a five-month high in January as Europe’s largest economy showed signs of avoiding a recession.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 107.6 from 107.2 in December, according to the median forecast of 42 economists in a Bloomberg News survey. That would be the highest since August and the third straight increase. The institute will release the report at 10 a.m. in Munich today.

The report, along with surveys showing manufacturing and service industries expanded more than economists forecast this month, would add to evidence that Germany has shaken off a probable contraction in the fourth quarter. While the International Monetary Fund yesterday cut its prediction for German expansion this year, it said that the economy will weather a recession in the region and keep growing.

“The way it looks now is that the recession won’t be visiting Germany,” said Jens Kramer, an economist at NordLB in Hanover. “The economy is exceptionally robust, order books are full, domestic demand is strong and, maybe hard to believe for some, there is no sense of crisis here.”

Ifo’s gauge of the current situation may have increased to 116.8 from 116.7, while an index measuring executives’ expectations probably advanced to 99 from 98.4, the survey of economists shows.

Germany’s statistics office said on Jan. 11 the economy probably shrank about 0.25 percent in the final three months of last year. Growth slowed to 3 percent in 2011 from 3.7 percent in 2010, which was the most since German reunification two decades ago.

‘Weak Phase’

The country’s economic upswing has only come to “a temporary halt,” Bundesbank President Jens Weidmann said yesterday. While growth may stagnate in the first three months of the year, “economic dynamism should return in the course of the year.”

The IMF yesterday forecast growth of 0.3 percent in 2012. While that’s lower than its previous estimate, it compares with contraction of 0.5 percent predicted for the euro region.

Unemployment fell more than forecast in December as exports of cars and machinery boomed and one of the mildest winters on record helped support jobs in construction. The adjusted jobless rate dropped to 6.8 percent, a two decade low, which will help bolster domestic demand.

Bayerische Motoren Werke AG (BMW), Audi AG and Daimler AG, the world’s three biggest luxury-carmakers, all said this month they plan to grow faster than competitors in 2012 after setting sales records last year.

Consumer Confidence

Even though policy makers are still grappling with fixing the region’s debt crisis and the risk of a credit crunch is not yet banished, consumer confidence in the euro area, Germany’s biggest export partner, unexpectedly rose this month. European Central Bank President Mario Draghi has said that 2012 will be “a much better” year for the bloc.

“It obviously all depends on the crisis not blowing up again,” said Ken Wattret, chief euro-area economist at BNP Paribas SA in London, who has revised his forecast for German growth this year to 1.1 percent from 0.4 percent. “But for now, there is real traction in the German economy.”