German Ifo Business Confidence Seen Rising A Fifth Month

German business confidence probably increased for a fifth month in September amid signs the economic recovery is continuing in the euro area, the nation’s biggest trading partner.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 108 from 107.5 in August, according to the median of 43 forecasts in a Bloomberg News survey. That would be the highest level since April 2012. Measures of current conditions and expectations also gained, the survey shows.

Germany, Europe’s largest economy, is benefiting from unemployment near a two-decade low and the end of the 17-nation euro area’s longest-ever recession. Angela Merkel is poised for a third term as German chancellor after her Christian Democratic bloc took the largest share of the vote in Sept. 22 elections on her track record of shielding the country from the worst of the region’s debt crisis.

“Merkel can celebrate a personal victory in the German elections and a strongly improving domestic economy,” said Rob Wood, an economist at Berenberg Bank in London. “Domestic demand will need be the main driver of German growth, which in turn will help the periphery pursue an export-led recovery to shake off the remnants of the euro crisis.”

Car Sales

Daimler AG, the world’s third-largest maker of luxury vehicles, said this month that it’s having trouble filling orders as August sales at an all-time high put premium-car manufacturers on course for record full-year deliveries.

Porsche AG, the Volkswagen AG unit that builds the 911 sports car, said it will reach a target of selling more than 200,000 vehicles a year in 2015 or 2016, about three years earlier than initially planned. Investments in expanding and modernizing factories around its hometown in Stuttgart, Germany, will exceed 1 billion euros ($1.32 billion) by 2018, Matthias Mueller, the head of the Porsche brand, said on Sept. 5.

German investment in plant and machinery increased for the first time since 2011 in the second quarter. Unemployment was at 6.8 percent in August.

While the economy is showing signs of growth, the pace is uneven, according to the Bundesbank. German factory orders, industrial production and exports all declined in July, and a preliminary gauge of manufacturing for September unexpectedly dropped.

Growth Risks

“At the start of summer 2013, the German economy didn’t sustain the rebound from earlier in the year,” the Frankfurt-based central bank said in its monthly report yesterday. “Company investment confirms the evidence of a solid foundation, though signs of a dramatic upswing are lacking.”

The Bundesbank predicts the German economy will expand 0.3 percent this year and 1.5 percent in 2014. The European Central Bank forecasts the euro-area economy will shrink 0.4 percent in 2013, followed by growth of 1 percent next year. The currency bloc’s gross domestic product expanded 0.3 percent in the three months through June, snapping six consecutive quarters of contraction.

While “significant” risks remain, “overall I believe we have turned the corner,” European Union Economic and Monetary Affairs Commissioner Olli Rehn said on Sept. 12. “We are seeing the first signs that the euro-area economy may be turning around.”

Coalition Talks

A gauge of services in the euro area, based on a survey of purchasing managers by London-based Markit Economics, climbed this month to the highest level in more than two years. Investor confidence in the German economy rose to the highest level in more than three years, according to a survey by the ZEW research institute.

Merkel may yet have to form a grand coalition with the center-left Social Democrats after her current partners, the liberal Free Democrats, failed to secure re-entry to parliament.

A grand coalition would mean a “stable growth outlook for the German economy, but don’t expect a fiscal boost,” said Holger Sandte, Chief European Analyst at Nordea Markets in Copenhagen. “It would come without the charm of a new beginning and only after several weeks of tough negotiations.”

Source : bloomberg