German businesses, consumers upbeat despite crisis

AP News
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Posted: Dec 20, 2011 7:41 AM
German businesses, consumers upbeat despite crisis

German business and consumer confidence ended 2011 on a high note despite ongoing fears about the European economy, two closely watched surveys showed Tuesday.

The Ifo Institute's monthly index of business confidence increased to 107.2 points from 106.6, as participants' assessment of their current situation remained unchanged but expectations for the next six months rose.

"Overall, latest Ifo data give ground for optimism that the German economy will weather the ongoing negative influence from eurozone debt crisis developments and the general worsening of prospects for external demand from the rest of Europe fairly well," said Timo Klein, an economist with IHS Global Insight.

Economists had been predicting a drop to 106 amid weakness in the global economy and serious concerns about the financial future of several eurozone countries.

"The German economy seems to be successfully countering the downturn in Western Europe," said Ifo president Hans-Werner Sinn. "This bodes well for Christmas."

Consumer confidence also proved resilient, according to the GfK research institute's forward-looking indicator for January. It remained unchanged from December's 5.6 points as people were optimistic "despite rising economic risks and further escalation of the debt crisis."

There were mixed messages from the survey, however, as German income and economic expectations both rose but consumers' willingness to buy dropped significantly, GfK said.

"Willingness to buy did not benefit from the improvement in economic and income expectations..." Gfk said, noting that it still remained at a "comparatively high level."

GfK said its survey of 2,000 consumers was almost complete before the most recent EU summit in Brussels and that it is unclear whether the inclination to hold back on purchases may now be resolved with the broad agreement reached there.

But it also said that while economic expectations are "defying the rising fears of recession," that might change as the debt crisis hurts German exports.

"With most German companies operating at above average capacity, the labor market is very robust and unemployment figures continue to fall," GfK said. "Whether this trend can be sustained remains to be seen _ the European debt crisis is increasingly likely to become a problem for Germany's export economy."

Dutch consumer confidence, by contrast, fell sharply in December to below the deepest lows of 2008 and 2009, according to a new report Tuesday.

The differing outlook is unusual, given the two economies' close trade links and common view on economic policy, as the Dutch government has consistently backed German policies throughout the crisis.

The country's Central Bureau for Statistics pointed to worries over the Dutch housing market, wage stagnation, and forecasts for a mild recession in the Netherlands in 2012 as key differences.

Ifo, which surveyed approximately 7,000 German businesses, said that their assessment of their current situation remained unchanged for the third month in a row, while expectations for the next six months ticked up for the third month in a row.

Earlier this month, Ifo lowered its forecast for German growth for 2012 to 0.4 percent because of the financial turmoil and a cooling global economy.

The government's independent economic advisers last month predicted that output would expand by 0.9 percent in 2012. Both forecast growth of 3 percent this year.

Another German think tank, the IfW institute, on Tuesday lowered its 2012 growth projection from 0.8 percent to 0.5 percent, while Essen's RWI institute lowered its forecast from 1 percent to 0.6 percent.

Carsten Brzeski, an economist with ING Global Research said that while it is clear that the German economy is cooling, the Ifo results indicate it is "heading towards a soft patch but not falling off the cliff."

"The length of the soft patch will to a large extent be determined by the management of the debt crisis," he said. "The German economy should remain the stronghold of the Eurozone. It is faltering, but not falling."

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Toby Sterling in Amsterdam contributed to this report.