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German companies plan to invest, hire in 2007, boosting economy

German companies including Continental AG and Adidas AG plan to hire and increase spending in 2007 as profits rise, helping Europe's largest economy to continue growing following the fastest expansion since 2000.

Executives at 18 of the 26 German companies that participated in an annual Bloomberg News survey said they expect earnings to improve next year. Some 22 said they will invest as much or more than they did in 2006 and 14 plan to employ more staff. Most respondents expect economic expansion to continue in 2007 and said Chancellor Angela Merkel's sales-tax increase will damp growth only temporarily. „The German economy is ready to take off,” said Axel Heitmann, CEO of chemical maker Lanxess AG, which plans to hire at least 100 new staff and invest 4% of sales.

„Besides an unchanged strength in exports, increasing capital investment and private consumption is contributing. I'm optimistic for 2007.” Surging exports and investment growth are fueling the fastest economic expansion in Germany in six years. Only three survey respondents expressed concern that Merkel's 3 percentage-point increase in value-added tax on January 1 will have a lasting impact on growth. „We expect the tax increase to lead to a slight dent in the Q1,” said Henning Kreke, CEO of Douglas Holding AG, a cosmetics retailer that plans to open 50 new perfumeries across Europe next year. „We hope that the economic motor will restart quickly after that and help turn the mini-boom that we're seeing right now into a sustainable boom.”

Business confidence in December unexpectedly surged to the highest since the reunification of east and west Germany in 1990. The Munich-based Ifo institute on December 14 raised its forecast for German economic growth in 2007 to 1.9% from 1.7%. It expects the economy to grow 2.5 this year, the most since 2000. The Kiel-based Institute for World Economics, which together with Ifo and four other institutes provides twice- yearly reports for the government, on December 12 more than doubled its 2007 growth forecast for Germany to 2.1%. Stronger global demand for products from Germany, the world's biggest exporter of goods, prompted companies such as Pfeiffer Vacuum Technology AG, a vacuum-pump manufacturer, to expand. That helped to push German unemployment to a four-year low of 10.2% in November and stimulate consumer spending, which rose 0.7% in the Q3.

Herbert Hainer, CEO at Adidas, the world's second-biggest sporting goods maker, said while the company is expanding the most in markets such as Russia and China, it's also growing in Germany, where it plans to create about 100 new jobs next year. Overall, „we expect earnings to increase by close to 15%,” he said. Higher profit at companies including Deutsche Postbank AG, Germany's biggest consumer bank by clients, and RWE AG, the country's second-largest utility, has propelled the benchmark DAX share index to the highest level since February 2001. „Consumers are more confident,” BASF AG, the world's largest chemicals producer, said in its survey response.

„However, it is too soon to say” whether the economic upturn will be sustained, given uncertainties such as „the development of the oil price and the US dollar.” While the oil price has dropped about 18% from a record $78.40 a barrel in July, leaving companies and consumers more money to spend on other goods, it rose again in November. Crude oil for February delivery was at $60.45 in after-hours electronic trading on the New York Mercantile Exchange at 1:25 p.m. in Singapore.

The euro appreciated about 12% against the dollar in 2006, making German exports more expensive abroad. Of the 12 companies that responded to a question on the exchange rate, 10 said they expect the euro to continue to rise. „We expect the euro to be at $1.38 by the end of 2007,” said Michael Heise, chief economist at Allianz SE, Europe's biggest insurer. The currency traded at $1.3124 per euro at 2:28 p.m. in Tokyo.

Further undermining exports, all 14 companies that responded to a question on the global economy said they expect growth to cool slightly next year as the US economy, the world's largest, slows amid a housing slump. The International Monetary Fund says the world economy will expand 4.9% in 2007 after 5.1% this year. For now, „the German economy continues to profit from its export successes and will increasingly gain support from domestic demand,” said Werner Wenning, CEO at Bayer AG, Germany's largest drugmaker. (Bloomberg)