German October Business Confidence May Rise to 13-Month High
German business confidence probably rose to a 13-month high in October, improving the outlook for growth in Europe’s largest economy.
The Ifo institute in Munich will say its business climate index, based on a survey of 7,000 executives, increased to 92 from 91.3 in September, according to the median of 40 forecasts in a Bloomberg survey of economists. That would be the highest reading since September last year. The index reached a 26-year low of 82.2 in March. Ifo releases the report at 10 a.m. today.
The German government last week increased its forecasts for the economy and now expects growth of 1.2 percent in 2010 after a contraction of 5 percent in 2009. With the recovery likely to be tempered by rising unemployment, the euro’s increase against the dollar and the expiry of stimulus measures, the European Central Bank is reluctant to tighten policy too soon.
“We expect relatively robust growth in the second half of this year as the economy bounces back from recession,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt. “However, the recovery next year will be dull and bumpy.”
Ifo’s gauge of the current situation will increase to 88 while an index of executives’ expectations will advance to 96.2, according to the survey of economists.
Volkswagen AG, Europe’s biggest carmaker, predicts the worldwide automotive market won’t match pre-recession levels until 2013 at the earliest. “There are growing signs that the worst of the crisis may now be behind us, but it will take time for the markets to recover,” Chief Executive Officer Martin Winterkorn said on Oct. 8.
Fiscal Stimulus
Chancellor Angela Merkel’s government is trying to haul Germany out of its worst recession since World War II with about 85 billion euros ($127 billion) in stimulus measures. Her Christian Democrats are also prepared to cut taxes by 20 billion euros after they form a coalition with the country’s Liberal Democrats, negotiator Steffen Kampeter said on Oct. 16.
“The economy still is on a drip but will return to sustainable growth next year,” said Carsten Brzeski, an economist at ING Groep NV in Brussels, who expects overall output to expand by 2 percent in 2010. “We haven’t seen the election effect so far and the support measures taken are also designed to spur private investment.”
Economic data are mixed. While German factory orders rose for a sixth month in August and industrial output gained, exports unexpectedly fell. Investor confidence declined for the first time in three months in October amid concerns the recovery could falter.
The euro has appreciated 20 percent since mid-February and reached a 14-month high of $1.50 this week, eroding export returns. Rising joblessness may also discourage household spending.
The ECB has cut its benchmark rate to a record low of 1 percent and is lending banks as much money as they want for up to a year in an effort to get credit flowing through the economy of the 16 nations sharing the euro. President Jean-Claude Trichet has repeatedly said that it’s too early to withdraw monetary policy stimulus.