German and French Business Confidence Grows in November

on Nov 23, 2012

In November the Ifo Business Climate Index for German industry and trade rose for the first time after six consecutive decreases as companies came out as slightly more satisfied with the current business environment and less pessimistic of future prospects.

According to the report published today by the Munich-based Ifo institute, the Business Index rose to 101.4 in November from a reading of 100.0 in the previous month. The index began its slide in April this year and kept on falling to its lowest point for the year in October. The results are better than the 99.5 figure predicted by 48 economists surveyed by Bloomberg News.

“That is truly surprising and a positive surprise but it certainly doesn’t mean German companies now expect a boom,” said Carsten Brzeski, an economist at ING Group, as quoted by Bloomberg. “It’s more that they don’t want to join the chorus of the doom- gloom-merchants, they know we’re not over the worst, but that things will get better. Markets have calmed down and there are green shoots in the global economy.”

The business climate index in wholesaling increased sharply in November as wholesalers reported dramatic improvements in their business situation and remained positive on future developments.
**German GDP**
In the third-quarter German growth slowed to 0.2 percent from 0.3 in the second dragged down by low inventories and company investments in plant and machinery. Propellers for growth were exports, construction and household spending, according to a detailed breakdown by the Federal Statistics Office.

Many economists expect a contraction in German GDP in the last quarter of this year but the country will most likely avoid recession, which is defined as two consecutive quarters of quarter-on-quarter falls in the GDP. “Even though we’re expecting the economy to shrink in the fourth quarter, conditions should improve in the new year,” said Tobias Blattner, an economist at Daiwa International in London. “It’s going to be a dip in growth rather than a recession in Germany.”

**French Business Sentiment**
Despite bouncing back in November, French business sentiment remained close to its lowest levels in three years suggesting that growth in the country will still be subdued in the last quarter. The National Institute of Statistics and Economic Studies (INSEE) reported that the index for the business environment was at 88 in this month compared to 85 in October. The figure is slightly better than a Dow Jones forecast of 86. “According to company managers in November, the outlook in industry remains badly oriented, despite a slight amelioration of the indicator,” commented INSEE.
!m[But Eurozone’s Biggest Economies Remain Under Threat of Recession](/uploads/story/887/thumbs/pic1_inline.png)On 19 November Moody’s downgraded France’s top credit rating due to “deteriorating economic prospect”. Standard & Poor, which already reduced the country’s rating in January, said there is a 33 percent chance of further downgrades.
**EU Budget Pessimism**
German Chancellor Angela Merkel has determined not to isolate UK Prime Minister David Cameron, who is insisting that further cuts should be made to the EU spending package before it is agreed upon. According to the Financial Times, in a meeting with Mr Cameron just before the European Council resumed talks, Ms Merkel assured she wants a unanimous agreement on the EU budget. She is also pessimistic about the prospects of a deal being reached this weekend, unlike the council’s president Herman Van Rompuy who is determined to get things wrapped up by Sunday.
“The positions are still quite far apart,” Ms Merkel told reporters today. “And if we need a second stage, then we will take the time for it.”


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