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Portfolio > Economy & Markets

German Business Confidence Rises

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Although a sovereign debt sale on Wednesday left nearly half of Germany’s bund offerings unsold, the nation’s business confidence rose unexpectedly in a report issued Thursday, when it was expected to have fallen.

Bloomberg reported that in its own survey of economists, Germany’s business climate index, issued by Munich-based Ifo Institute, was expected to decline to 105.2 from its October level of 106.4. However, the index, based on a survey of 7,000 executives, instead rose to 106.6. It was the first increase in the index in five months, and coming just after a bond sale that had been described as a disaster, was especially surprising.

However, Germany’s unemployment level remains near a 20-year low, and consumer spending remains fairly steady. The country’s economy expanded 0.5% in Q3, more than the 0.3% it managed in Q2, and it was almost completely due to domestic demand, according to a final reading from the Federal Statistics Office released Thursday. Ifo said its evaluation of the present conditions held steady at 116.7, while an index of executives’ expectations rose to 97.3 from 97.

Hans-Peter Keitel, president of Germany’s BDI industry federation, had predicted November 21 that a recession is not likely to occur, since industrial companies are in “robust condition” with “well filled” order books. Adidas AG Chief Executive Officer Herbert Hainer had said at the beginning of the month that Europe’s debt crisis will not stop sporting goods market growth; because of company expansion in both Russia and China, he predicted that the company’s earnings in 2012 would be even higher. Other companies are also counting on growth outside Germany and the euro zone; Bayer AG expects Asian sales to grow more than 60% by 2015, and BMW AG Chief Financial Officer Friedrich Eichiner has predicted “double-digit” sales growth in the U.S.

Nonetheless, the market had punished Germany on Wednesday in its bond sale, and with other euro zone nations suffering, Berlin is not immune to the effects of a market slowdown. The country’s 10-year bond yield climbed again Thursday, with German manufacturing output contracting for a second month in November and investor confidence falling to a three-year low. Norbert Steiner, CEO of K+S AG, Europe’s largest maker of potash, said earlier in the month, “The longer this uncertain situation persists, the larger the worries that the debt crisis will spread to the real economy. Psychology plays an important role.”


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