German Business Confidence Index Unexpectedly Increases

German business confidence unexpectedly rose to an eight-month high in March, suggesting Europe’s largest economy will return to growth even as the sovereign debt crisis curbs euro-area demand for its exports.

German manufacturing output unexpectedly contracted this month as governments and households reduced spending across the euro region, Germany’s largest export market. At the same time, policy makers have made progress in tackling the debt crisis, with the European Central Bank’s injection of more than 1 trillion euros ($1.3 trillion) into the banking system helping to bolster investor sentiment.

Germany’s economy contracted 0.2 percent in the final quarter of 2011. While it “may still be moving sideways,” confidence indicators suggest “a rejuvenation of the economy in the early part of 2012” as unemployment at a two-decade low boosts household spending, the Bundesbank said last week. As austerity measures curb demand in Europe, German companies are compensating with sales in faster-growing markets.

ECB President Mario Draghi said March 8 that the outlook for the 17-nation euro area “has improved enormously” and there are “many signs of returning confidence.”

“The ECB’s generous liquidity injection has really helped to ease concerns over a further escalation of the debt crisis,” said Tobias Blattner, director of economic research at Daiwa International in London. “Furthermore, the German fundamentals just remain very solid.”

Policy makers have made strides in solving the debt crisis. Greece reached a debt-swap deal with its private creditors earlier this month and European leaders approved a second bailout package for the nation. Euro-region governments have also signed up to a tighter set of budget rules.

Bloomberg March 2012

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Oecd Sees Europe, u.S. Drifting Apart

THE economies of Europe and North America will diverge in the first half of this year, with European budget cuts weighing on demand while the U.S. economic recovery picks up steam, the Organization for Economic Cooperation and Development said in a report Thursday.

In its latest assessment of the global outlook, the Paris-based think tank raised its forecast for the U.S. economy, which it said should grow at an annualized rate of 2.9% this quarter and 2.8% next. Japan is also forecast to grow more than OECD economists had thought in November, at an annualized rate of 3.4% in the first three months of the year and 1.4% in the April-June period.

A muted pickup in euro-zone industrial production at the start of the year raised expectations that if the euro zone is to enter a recession, it will be mild, at least in its initial stages. The euro-zone economy contracted in the final three months of last year, and the European Commission has said it expects another contraction this quarter. A recession is commonly defined by two consecutive quarters of contraction.

In the U.S., a rebound in equity prices, stronger consumer confidence and growth in nonfarm payroll employment have lifted projected activity.

The number of U.S. workers filing new applications for unemployment benefits last week fell to its lowest level since April 2008, showing the labor market is continuing its steady improvement this year. Initial jobless claims fell by 5,000 to a seasonally adjusted 359,000 in the week ended March 24, the Labor Department said Thursday.

Growth is weakening in emerging markets—seen until recently as the global economy’s engine—and further damage could come from the recent rise in oil prices. “There have been recent signs of a slowing activity in a number of emerging-market economies, notably in China,” the OECD said, without providing specific growth rates.

The Wall Street Journal March 2012

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