German Business Confidence Unexpectedly Increased in November

German Business Confidence Unexpectedly Increased in November

By Simone Meier

Nov. 27 (Bloomberg) -- German business confidence unexpectedly rose in November, suggesting companies are coping with oil prices near $100 a barrel and the euro's appreciation.

The Ifo research institute in Munich said its business climate index, based on a survey of 7,000 executives, increased to 104.2 from 103.9 in October. Economists expected a decline to 103.3, according to the median of 41 forecasts in a Bloomberg News survey.

German economic growth accelerated in the third quarter as falling unemployment boosted consumer spending and companies stepped up investment even as the euro surged to a record against the dollar, threatening to hurt exports. Today's report contrasts with investor confidence, which dropped to the lowest in almost 15 years in November.

``It's surprising how long the Ifo indicator can stay at such a high level,'' Astrid Schilo, an economist at HSBC Securities in London, said before the report was released. ``We expect growth momentum to weaken in the fourth quarter. We're clearly past the peak.''

German economic growth may slow to about 2 percent next year from around 2.5 percent this year, the BDB banking association said Nov. 21.

The economy expanded 0.7 percent in the third quarter from the second, when it grew 0.3 percent. In the 13-nation euro region, economic growth also accelerated to 0.7 percent in the three months through September, beating economists' forecasts.

`Stable' Sales

Daimler AG, the world's second-largest maker of luxury vehicles based in Stuttgart, Germany, expects European sales next year to be ``on a very good level,'' Andreas Renschler, the company's truck division chief, said Nov. 22. In Eastern Europe, sales are ``very strong. Western Europe is stable,'' he said.

Booming demand for German goods in Asia and Eastern Europe is helping exporters as the euro's 13 percent gain against the dollar this year erodes U.S. returns. Porsche AG, maker of the 911 sports car based in Stuttgart, said Nov. 12 that a weaker dollar hurt the value of its U.S. sales.

The euro's advance also helps mitigate the impact of increasing oil prices by reducing the cost of imports. Crude oil reached a record $99.29 a barrel on Nov. 21, bringing gains since mid-January to 96 percent.

Still, the European Central Bank shelved a planned interest- rate increase in September after the U.S. housing slump pushed up the cost of credit globally, threatening to curb economic expansion.

Subprime Damage

Record foreclosures on U.S. home loans to borrowers with poor credit histories have rattled debt markets and caused about $50 billion of trading losses and investment write-downs at the world's biggest financial institutions. The total damage may reach $400 billion, according to Deutsche Bank AG analysts.

ECB President Jean-Claude Trichet said Nov. 8, after leaving the benchmark rate at 4 percent, that overall risks to growth are ``judged to lie on the downside.'' The European Commission last month cut its forecast for euro-region growth next year to 2.2 percent from 2.5 percent.

``Risks for the economy have increased as a result of financial-market developments, but there's no reason for economic pessimism,'' Bundesbank President Axel Weber said Nov. 2. ``There are numerous signs that the upswing in Germany and globally will continue, albeit with a bit less momentum than before.''