Germany Gets Glimmer of Hope as Firms Say Worst May Be Over

(Bloomberg) --

German business expectations improved in October from a decade low, a cautious sign that Europe’s largest economy may have stopped deteriorating at the start of the fourth quarter.

The figures from the Ifo Institute offer a glimmer of hope a day after a survey showed manufacturing still stuck in a slump and industry employment falling at the fastest pace in almost 10 years. Germany’s economy is forecast to have slipped into a technical recession in the third quarter, though economists see a return to modest growth at the end of the year.

Ifo said Friday its business climate indicator was unchanged in October, and the expectations measure rose more than economists forecast to a three-month high.

The euro rose 0.1% to $1.1117. German 10-year bond yields, which have been pushed far below zero this year on concern about the economy, climbed 2 basis points to minus 0.38%.

The report is a rare piece of encouraging news for the export-reliant economy, which is taking hits on multiple fronts, from a global slowdown amid trade tensions to upheaval in its key auto industry. Purchasing Managers’ Indexes show manufacturing mired in a deep slump, though the latest figures also showed that a decline in demand has eased somewhat.

The country’s struggles are also weighing on the euro zone, where the European Central Bank stepped up monetary stimulus last month by cutting interest rates further below zero and reviving asset purchases. In his final press conference on Thursday, President Mario Draghi highlighted how the euro-area services sector is now showing signs of negative contagion.

While the downturn has amplified calls for governments to add fiscal stimulus, in Germany imminent action appears unlikely.

Chancellor Angela Merkel has said the problem isn’t a shortage of money for investment, and there are sufficient projects in the pipeline. A government spokeswoman said Friday that Germany is sticking to its balanced-budget policy and sees no need for a spending program to boost the economy -- a worrying sign for Christine Lagarde, who takes over the ECB presidency following Draghi’s exit this month.

--With assistance from Kristian Siedenburg and Harumi Ichikura.

To contact the reporter on this story: Yuko Takeo in Frankfurt at ytakeo2@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Fergal O'Brien

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