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 (LHA) 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 (CON), 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 (IFX), Europe’s second-largest maker of semiconductors, on Nov. 16 forecast a steeper decline in full-year sales than analysts estimated.
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Consumer Spending, Durable Orders Signal Slower Growth
Americans pulled back on spending in October and manufacturers received fewer orders for durable goods, tempering expectations for a pickup in economic growth in the fourth quarter.
Consumer purchases, which account for 70 percent of the economy, increased 0.1 percent after a 0.7 percent gain in September, Commerce Department figures showed today in Washington. Bookings for equipment meant to last at least three years fell 0.7 percent after a 1.5 percent drop in September.
Unemployment stuck near 9 percent and confidence at recession levels prompted consumers to curb spending on the eve of the holiday shopping season. Manufacturers may see orders cool as the European sovereign-debt crisis roils financial markets and threatens the global expansion.
“We’re looking at holiday spending that won’t be great, but probably not a washout,” said Robert Dye, chief economist at Comerica Inc. in Dallas. “It’s an economy that still refuses to give strong, clear signals of recovery. Weaker global macroeconomic conditions are beginning to exert a drag on manufacturing.”
Stocks fell, sending the Standard & Poor’s 500 Index (SPX) down for a sixth straight day, as the cost of insuring European government debt against default rose to a record. The S&P 500 retreated 2.2 percent to 1,161.79 at the close in New York. The U.S. 10-year Treasury note yield fell to 1.88 percent from 1.92 percent late yesterday.
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Confidence Among U.S. Consumers Rises to the Highest Level in Five Months
Confidence among U.S. consumers rose in November to the highest level in five months.
The Thomson Reuters/University of Michigan final index of consumer sentiment rose to 64.1 this month, the highest since June, from 60.9 in October. The median estimate of economists surveyed by Bloomberg News called for a reading of 64.5.
Further gains in sentiment, which is still at levels seen during the last recession, may provide ballast for the consumer spending that makes up about 70 percent of the economy. Unemployment hovering around 9 percent and concerns over a possible euro zone default and deficit reduction gridlock in the U.S. are weighing on consumers’ spirits.
“Confidence is still in recession territory, well below normal,” Sal Guatieri, a senior U.S. economist at BMO Capital Markets in Toronto, said before the report. “Confidence hasn’t fully recovered the drop-off from earlier in the summer that stemmed in part from the debt-ceiling fiasco, the downgrade and the escalation of the euro credit crisis.”
Estimates of the 63 economists surveyed by Bloomberg for the confidence measure ranged from 62.5 to 67. The index averaged 89 in the five years leading up to the recession that began in December 2007 and ended in June 2009. It averaged 64.2 during the 18-month recession.
The Michigan survey’s index of current conditions, which reflects Americans’ perceptions of their financial situation and whether they consider it a good time to buy big-ticket items like cars, increased to 77.6 from 75.1 the prior month.
The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, climbed to a four-month high of 55.4 from 51.8
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China Signals Growth Concern in Credit Boost
China widened efforts to support cash-strapped companies in Zhejiang and rural areas hit by a credit squeeze that’s slowing the second-largest economy just as Europe’s debt crisis saps export demand.
The People’s Bank of China cut the reserve ratio for more than 20 rural credit cooperatives nationwide by half a percentage point, according to an announcement from its Hangzhou branch in Zhejiang, where small businesses have complained about lack of access to credit. Bank of America Merrill Lynch predicts officials will lower the ratio for large commercial banks early in 2012.
Evidence is mounting that growth has moderated in the economy that’s led the global expansion, with home sales falling 25 percent last month and a report yesterday signaling manufacturing may shrink the most in almost three years. Premier Wen Jiabao has pledged to “fine tune” policy as needed.
“The unexpectedly sharp drop in China’s flash PMI for November, if corroborated by other indicators, is likely to push policy makers to go beyond policy ‘fine-tuning’ to outright easing,” said Mark Williams, a London-based Asia economist at Capital Economics Ltd. “Confirmation that the People’s Bank has lowered reserve requirements for some banks is likely to be only the start.”
The “flash” reading for the manufacturing PMI reported by HSBC Holdings Plc and Markit Economics yesterday was 48, under the 50 level that’s the border between expansion and contraction.
