German business confidence unexpectedly rose for a second month in December, suggesting Europe’s largest economy is weathering the region’s debt crisis.
The Ifo institute’s business climate index, based on a survey of 7,000 executives, rose to 107.2 from 106.6 in November, the Munich-based institute said today. Economists expected a drop to 106, the median forecast of 36 economists in a Bloomberg News survey showed.
“Companies just don’t believe in this scary recession scenario,” said Alexander Koch, an economist at UniCredit Group in Munich. “The domestic economy is doing well, the labor market is holding up and the outlook for export markets outside of Europe is pretty solid.”
Today’s reading is the latest indicator to show Germany is being shielded from the worst of Europe’s debt crisis. Investor sentiment unexpectedly rose for the first time in 10 months in December and gauges of manufacturing and services activity also increased. German consumer confidence will hold its gains in January as unemployment at a two-decade low boosts the economic outlook, market research company GfK SE said today.
Ifo’s gauge of the current situation was unchanged at 116.7, while an index measuring executives’ expectations increased to 98.4 from 97.3. The euro extended its gains after the report at traded at $1.3039 at 10:05 a.m. in Frankfurt.
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U.K. Shuns Aid as Europe Channels $195B to IMF
Europe bolstered its anti-crisis arsenal, channeling 150 billion euros ($195 billion) to the International Monetary Fund as the European Central Bank widened its support for sagging bond markets.
Four countries not using the single currency also pledged to add to the IMF war chest while Britain refused to commit, preventing officials from reaching the 200 billion-euro target to ease the euro area’s home-grown debt burdens. The U.K. will “define its contribution” in early 2012, euro finance ministers said in a statement after a conference call yesterday.
The IMF track is “obviously a small-scale solution,” former UBS AG Chairman Peter Kurer told Maryam Nemazee on Bloomberg Television’s “The Pulse” program. “What really would be needed in the ideal world would be euro bonds or a substitute which can bring large-scale liquidity and confidence into the markets.”
Germany continued to oppose an early decision to raise the limit of 500 billion euros on overall emergency aid. European leaders plan to tackle that question by March. Still, the IMF infusion and jump in ECB bond purchases indicated that Europe is wielding more money instead of relying on budget cuts alone to persuade investors to return to markets scarred by two years of burgeoning debt and threatened defaults.
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Consumer Stocks May Lag as Restaurants Signal Slower U.S. Spending: Retail
Restaurant stocks are underperforming the U.S. market, a signal that shares of retail companies also may be poised to lag behind.
Income growth, one of the primary drivers of discretionary spending, remains lackluster, as does the labor market, said Tom Porcelli, chief U.S. economist at RBC Capital Markets Corp. in New York. Even with unemployment falling below 9 percent in November for the first time since March, consumers still “lack the ammunition to drive spending at this point,” he said.
Real disposable personal income, or the money left over after taxes and adjusted for inflation, is down 0.4 percent since December 2010, according to data from the Bureau of Economic Analysis. Meanwhile, the Bloomberg Consumer Comfort Index has rebounded only about 4 points to minus 49.9 in the week ended Dec. 11, from the record low reached during the midst of the 18-month recession.
With both income growth and confidence weak, restaurants are a “canary in the coal mine,” because dining out is “one of the first things households cut during tough times,” said David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates Inc. in Toronto.
Darden Restaurants Inc. (DRI), operator of more than 1,900 eateries, reduced its annual sales-growth forecast Dec. 6, causing the shares to tumble 12 percent that day to $41.82, the biggest drop since August 2008. Same-restaurant sales at its Olive Garden chain fell 5.7 percent in November, the seventh consecutive month of declines, the Orlando, Florida-based company said Dec. 16 when it reported second-quarter earnings.
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Sweden Cuts Interest Rate for First Time Since 2009 on Europe Debt Crisis
Sweden’s central bank cut its main interest rate for the first time since 2009 and signaled it may keep the benchmark unchanged over the next year as Europe’s debt crisis saps growth in the largest Nordic economy.
The seven-day repo rate was lowered a quarter point to 1.75 percent, the Stockholm-based Riksbank said today. The move was predicted by 11 of 24 analysts in a Bloomberg survey, while two forecast a half point cut and the rest an unchanged rate. The bank lowered its rate forecast to 1.7 percent in the fourth quarter next year, on average, from a 2.3 percent estimate.
“They basically signaled no more rate cuts,” said Michael Grahn, an analyst at Danske Bank A/S in Stockholm. This disappointed the market, which had “expected that they would be a bit more aggressive,” he said.
Sweden’s bank returned to crisis mode as growth in the export-reliant economy, home to wireless network maker Ericsson AB, slowed for a third quarter in the three months through September. The European Central Bank and policy makers in neighboring Norway both cut rates this month to ease the fallout from the deepening debt crisis, which has sent Swedish interbank rates to a three-year high.
