German business confidence unexpectedly rose to an eight-month high in March, suggesting Europe’s largest economy will return to growth even as the sovereign debt crisis curbs euro-area demand for its exports.
The Munich-based Ifo institute said today its business climate index, based on a survey of 7,000 executives, increased to 109.8 from a revised 109.7 in February. Economists forecast it would remain unchanged at the initial February reading of 109.6, according to the median of 44 estimates in a Bloomberg News survey.
Unemployment at a two-decade low is fueling domestic demand, while the European Central Bank’s injection of more than 1 trillion euros ($1.3 trillion) into the banking system has helped to bolster investor sentiment. Germany’s benchmark DAX share index is up 18 percent this year. Still, manufacturing output unexpectedly contracted this month as governments and households reduced spending across the euro region, Germany’s largest export market.
Today’s report is “reassuring evidence that the German economy will not be thrown off track again due to the recent rise in oil prices or lingering euro-zone debt crisis risks,” said Timo Klein, senior German economist at IHS Global Insight in Frankfurt. “The odds that the German economy will strengthen continually during the course of 2012 remain quite high.”
The euro initially rose after Ifo’s report before dropping to $1.3220 at 11:45 a.m. in Frankfurt, down 0.4 percent today. The Stoxx Europe 600 Index rose 0.3 percent to 266.57.
Ifo’s gauge of the current situation was unchanged at 117.4, while an index measuring executives’ expectations advanced to 102.7 from 102.4. Ifo’s retailing index jumped to 10.6 from 3.7, offsetting declines in gauges of manufacturing, construction and wholesaling.
“The Ifo increase was driven by the retail sector, showing that the domestic economy is shielding Germany somewhat from the external turmoil,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt. “That will help avert a recession.’
Germany’s economy contracted 0.2 percent in the final quarter of 2011. While it “may still be moving sideways,” confidence indicators suggest “a rejuvenation of the economy in the early part of 2012” as the robust labor market boosts household spending, the Bundesbank said last week.
In Italy, consumer confidence unexpectedly rose to an eight-month high as Prime Minister Mario Monti overhauls the euro area’s third-biggest economy. The confidence index increased to 96.8 from 94.4 in February, statistics office Istat said in Rome today.
In Asia, Singapore’s industrial production grew less than economists estimated in February as a slump in electronics output persisted. Manufacturing rose 12.1 percent from a year earlier after a revised 9.6 percent decline in January, the Economic Development Board said. The median of 13 economists surveyed by Bloomberg News was for a 16.2 percent gain.
In the U.S., Federal Reserve Chairman Ben S. Bernanke is scheduled to speak at a conference in Arlington, Virginia, while Philadelphia Fed President Charles Plosser gives remarks at a conference in Paris. The Chicago Fed will release its national economic activity index for February later today.
ECB President Mario Draghi said March 8 that the outlook for the 17-nation euro area “has improved enormously” and there are “many signs of returning confidence.”
Greece reached a debt-swap deal with its private creditors earlier this month and European leaders approved a second bailout package for the nation. Euro-region governments have also signed up to a tighter set of budget rules.
Euro-area growth will recover to 1.1 percent next year after a 0.1 percent contraction in 2012, ECB forecasts show. The German economy will expand 0.8 percent this year, according to the panel of economic experts who advise the government.
A 40 percent jump in oil prices over the past six months is driving up energy costs, threatening to slow the recovery. Slower growth in China, the world’s second-largest economy, may also damp German exports. German companies have turned to faster-growing markets as austerity measures curb sales in Europe.
“We are currently seeing demand in the European market weaken,” Juergen Geissinger, chief executive officer at Schaeffler AG, the world’s second-largest maker of roller bearings, said on March 20. “Globally, however, our business is continuing to show a positive trend.”
Bayerische Motoren Werke AG, the world’s largest maker of luxury vehicles, said on March 13 that it plans to surpass last year’s record profit. “We are off to a promising start,” with car sales in the first two months of the year at an all-time high, BMW CEO Norbert Reithofer said.
Continental AG, Europe’s second-largest tire maker, is sticking to its forecast for a 5 percent revenue increase this year even as signs mount that growth in China is slowing.
“Even if the Chinese economy only grows 7 percent, then the car market has to grow by at least 5 percent,” CEO Elmar Degenhart said on March 21, adding that the Asian car market as a whole will grow about 5 percent this year, offsetting declines anticipated in Europe and North America.
Germany and its companies “are still the euro region’s Champions League players,” said Carsten Brzeski, an economist at ING Group in Brussels. “There will be growth.”