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German Business Confidence Rose to Seven-Month High


German business confidence rose more than economists forecast to the highest in seven months in February as progress in taming Europe’s debt crisis tempered the risk of a recession.

The Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, climbed to 109.6 from 108.3 in January. That’s the fourth straight gain and the highest reading since July. Economists predicted an increase to 108.8, according to the median of 38 estimates in a Bloomberg News survey.

 

Greece’s clinching of a second bailout package in Brussels this week and falling yields on government debt from Spain to Italy have buoyed investors’ optimism that the debt crisis has been shackled for now. The German economy, Europe’s largest, contracted less than forecast in the fourth quarter of 2011 and demand from abroad helped factory orders beat estimates in December, adding to signs the country can skirt a recession.

 

“The outlook for the German economy has significantly brightened over the last few weeks,” said Christian Melzer, an economist at DekaBank in Frankfurt. “We can now thoroughly imagine the scenario that we won’t see a technical recession.”

 

Germany’s Bundesbank said in its monthly report on Feb. 20 that the outlook for the economy has “improved perceptibly,” even though “risks relating to the sovereign-debt crisis remain.”

The Bundesbank in December forecast growth will slow to 0.6 percent this year from 3 percent in 2011 before accelerating to 1.8 percent in 2013.

Germany’s benchmark DAX share index has gained 16 percent this year, outperforming all its major European peers.

 

Continental AG, Europe’s second-biggest car-parts maker, said on Feb. 20 it plans to pay its first dividend in four years after posting a gain in 2011 profit. Puma SE, Europe’s second- largest sporting-goods maker, on Feb. 15 forecast earnings will grow this year and next after posting a 2011 profit that beat analysts’ estimates.

Still, the euro area is struggling to recover from a debt crisis that’s weighing on confidence and output. While euro-area finance ministers reached agreement on a second bailout package for Greece on Feb. 21 that is vital to stave off default next month, economists from Commerzbank AG to Citigroup Inc.

concluded the country may fail to deliver on its austerity commitments.

Belt-tightening across the region is damping growth in Germany’s biggest export market. The 17-nation economy contracted 0.3 percent in the fourth quarter, with German gross domestic product falling 0.2 percent.

European services and manufacturing output unexpectedly shrank in February, a report showed yesterday.

“Germany’s trade with the euro area is facing a lot of headwinds,” said Jens Sondergaard, senior European economist at Nomura International PLC in London. “But many people are still being too pessimistic on the German economy.’

Source: Bloomberg