German business confidence jumped more than economists forecast in January to a five-month high, signaling Europe’s largest economy may avoid a recession.
The Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 108.3 from 107.3 in December. Economists predicted an increase to 107.6, according to the median of 42 forecasts in a Bloomberg News survey. That’s the third straight monthly increase.
The report, along with surveys showing manufacturing and service industries expanded more than economists forecast this month, adds to evidence that Germany has shaken off a probable contraction in the fourth quarter. While the International Monetary Fund yesterday cut its prediction for German expansion this year, it said that the economy will weather a recession in the region and keep growing.
“This is not only great news for Germany, but also bodes well for the euro area,” said Andreas Rees, chief Germany economist at UniCredit Group in Munich. “Over the past 20 years, whenever the Ifo expectations component has risen three months in a row it signaled a turning point also for the euro- area economy. We should see some more green shoots across the rest of Europe by the summer.”
German Reunification
Ifo’s gauge measuring executives’ expectations advanced to 100.9 from 98.6, while the current-situation index fell to 116.3 from 116.7.
The euro touched $1.3052 after the report was released before slipping to $1.2986 at 11:19 a.m. in Frankfurt, down 0.4 percent. Two-year notes stayed lower, with the yield rising two basis points today to 0.24 percent.
Germany’s statistics office said on Jan. 11 that the economy probably shrank about 0.25 percent in the final three months of last year. Growth slowed to 3 percent in 2011 from 3.7 percent in 2010, which was the most since German reunification two decades ago.
The country’s economic upswing has only come to “a temporary halt,” Bundesbank President Jens Weidmann said on Jan. 23. While growth may stagnate in the first three months of the year, “economic dynamism should return in the course of the year.”
The IMF yesterday forecast growth of 0.3 percent in 2012. While that’s lower than its previous estimate, it compares with a contraction of 0.5 percent predicted for the euro region.
