German business confidence rose more than economists forecast to a seven-month high 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. Italian consumer confidence also rose more than forecast, a report showed on Thursday.
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.
Ifo’s gauge of the current situation increased to 117.5 from 116.3, while an index measuring executives’ expectations advanced to 102.3 from 100.9.
The euro gained more than a third of a cent to $1.3330 immediately after the report.
Economic outlook
Germany’s Bundesbank said on February 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 per cent this year from three per cent in 2011 before accelerating to 1.8 per cent in 2013.
Germany’s benchmark DAX share index has gained 16 per cent this year, outperforming all its major European peers.
Continental AG, Europe’s second-biggest car parts maker, said on February 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 February 15 forecast earnings will grow this year and next after posting a 2011 profit that beat analysts’ estimates.
Debt crisis
“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.”
In Italy, an index of consumer confidence rose to 94.2 in February from a revised 91.8 in January, which was a 16-year low, national statistics office Istat said in Rome. Economists forecast a reading of 92.1, according to the median of 10 estimates in a Bloomberg survey.
Still, the euro area is struggling to recover from a debt crisis that’s weighing on confidence and output. While 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.’
