November 24, 2011

German Business Confidence Probably Dropped in November

By Gabi Thesing
(Updates with German GDP in eighth paragraph. For more on Europe’s debt crisis, see EXT4.)
Nov. 24 (Bloomberg) -- German business confidence probably fell to a 20-month low in November as the euro area’s worsening debt crisis threatens to tip the economy into recession.
The Ifo institute’s business climate index, based on a survey of 7,000 executives, will drop to 105.2 from 106.4 in October, the median forecast of 40 economists in a Bloomberg News survey shows. That would be the lowest since March 2010. The institute releases the report at 10 a.m. in Munich today.
Growth in Europe’s largest economy may slow to a near standstill next year as the worsening turmoil curbs demand in the 17-nation currency bloc, Germany’s biggest export market, the Bundesbank said Nov. 21. The crisis, which is heading for its third year, has prompted companies such as Deutsche Lufthansa AG to scale back capacity to counter an anticipated slowdown.

“The trend is down, which is not surprising,” said Tobias Blattner, an economist at Daiwa Capital Markets in London. “However, even though we may have a quarter of negative growth, I definitely don’t see a recession in Germany. The order books are still full and the economy is solid. Domestic demand will have to cushion some of the export falloff.”
German Slowdown
Ifo’s gauge of the current situation may decrease to 115 from 116.7, while an index measuring executives’ expectations probably fell to 96 from 97, the survey of economists shows.
Some 18 months after Greece was first bailed out by euro- area nations, governments are still struggling to find a lasting solution to a crisis that has toppled five elected governments and is now engulfing Italy and Spain.
The European Commission on Nov. 10 cut its euro-region growth forecast for next year to 0.5 percent from 1.8 percent, citing the debt crisis. In Germany, growth may slow to 0.8 percent next year from 2.9 percent in 2011, the Brussels-based commission projected.
While the German economy expanded 0.5 percent in the third quarter, growth was driven almost solely by domestic demand, a final reading from the Federal Statistics Office showed today.
Manufacturing output contracted for a second month in November and investor confidence dropped to a three-year low.

Schaeffler AG, the roller-bearing maker that controls Continental AG, said on Nov. 22 that revenue growth in the fourth quarter may be restrained because of slowing demand for machine parts in Europe. Infineon Technologies AG, Europe’s second-largest maker of semiconductors, on Nov. 16 forecast a steeper decline in full-year sales than analysts estimated.
‘Uncertain Situation’
“The longer this uncertain situation persists, the larger the worries that the debt crisis will spread to the real economy,” Norbert Steiner, CEO of K+S AG, Europe’s largest maker of potash, said earlier this month. “Psychology plays an important role.”
Still, some companies are counting on U.S. and emerging- market sales to offset the drop in European demand.

Bayer AG, Germany’s largest drugmaker, said Nov. 16 it expects sales in Asia to grow more than 60 percent by 2015 as it builds local factories and sales networks. Bayerische Motoren Werke AG Chief Financial Officer Friedrich Eichiner earlier this month predicted “double-digit” percentage sales growth next year in the U.S.
While the European Central Bank has extended the use of its unconventional tools, such as offering banks unlimited cash for more than a year and purchasing the bonds of debt-strapped governments, policy makers have rejected calls to counter the crisis by printing money. The central bank, which will publish its latest economic projections in December, earlier this month forecast a “mild recession.”
“It’s obviously bitter for Germany that the main trading partner is heading for a massive slump,” said Jens Kramer, an economist at NordLB in Hanover. “However, the recovery has put the economy on a broader foundation, so stronger domestic demand should help insulate Germany somewhat.”

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