German Business Sentiment Rose a Fourth Month in July

German Business Sentiment Rose a Fourth Month in July

July 24 (Bloomberg) -- German business confidence rose for a fourth month in July, suggesting Europe’s largest economy is shaking off its worst recession since World War II.

The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, increased to 87.3 from 85.9 in June. Economists expected a gain to 86.5, the median of 32 forecasts in a Bloomberg News survey showed. The index reached a 26-year low of 82.2 in March.

The German economy may return to growth this quarter as a global recovery boosts exports and government measures to stimulate domestic spending kick in. Manufacturing orders rose for a third month in May and industrial production surged the most in almost 16 years. The Bundesbank said July 20 that the economy shrank “only slightly” in the second quarter after its record 3.8 percent contraction in the first.

“I assume that the improvement has rhyme and reason and isn’t just hot air,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt. “All global indicators are pointing upwards and suggest a trend reversal. The trough should be behind us.”

That may provide a boost for Chancellor Angela Merkel, who will seek a second term in office in national elections in September. Her coalition government is spending about 85 billion euros ($121 billion) to revive the economy, which it predicts will contract 6 percent this year.

‘Rocky Road’

Ifo’s measure of expectations increased to 90.4 from 89.5, while a gauge of current conditions rose to 84.3 from 82.4.

Exports rose 0.3 percent in May and the contraction in Germany’s manufacturing industry slowed for a fifth month in June. At the same time, German investor confidence unexpectedly fell this month, the ZEW Center for European Economic Research said on July 14.

“We still have a rocky road ahead of us and won’t reach cruising speed for some time,” said Mario Gruppe, an economist at NordLB in Hannover. “We’ll return to growth slowly. The recession has been too severe and its consequences will accompany us for several years.”

Unemployment rose to 8.3 percent last month and the Organization for Economic Cooperation and Development on June 24 predicted the jobless rate will surge to 11.6 percent next year.

Economists at Allianz SE, Europe’s biggest insurer, this week forecast the German economy will expand 2.3 percent in both the final two quarters of this year before contracting again in the first three months of 2010.

‘Good Start’

Continental AG, the German car parts and tire manufacturer burdened with 11 billion euros of debt, on July 20 said it returned to profit in the three months through June after two quarters of losses by pursuing spending cuts.

Praktiker AG Chief Executive Officer Wolfgang Werner said July 22 that Germany’s second-largest home-improvement retailer made a “good start” to the third quarter.

Belgian business confidence rose for a fourth month in July, the central bank in Brussels said yesterday. In France, the euro area’s second-largest economy, confidence also climbed for a fourth month, Paris-based statistics office Insee said.

The European Central Bank has cut its benchmark interest rate to a record low of 1 percent and started to buy covered bonds in an effort to unlock credit markets and restore growth the 16-nation euro region.

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