German investor confidence picks up again

December 9, 2008
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, FRANKFURT, December 9 – German investors proved to be surprisingly less gloomy for a second month running, a key survey showed on Tuesday, even though the country is in a recession that analysts warn is nowhere near an end.

The ZEW survey of investor confidence showed a surprise rise for December of 8.3 points to minus 45.2 points, compared with a forecast fall to minus 55.

It was the second straight month that investor confidence was stronger than expected but the index nonetheless remained "well below its historical average of (plus) 26.8 points," a ZEW statement said.

Mannheim-based ZEW said the improvement "signals that the worries about a further aggravation of the recession in the middle of 2009 seem to be limited.

"The interest rate cuts of central banks worldwide and the economic rescue packages should bolster the economic development," it added.

The index hit a record low of minus 63.9 points in July but since then the European Central Bank has cut its main interest rate from 4.25 percent to 2.50 percent while the German government has drafted banking and general economic rescue plans.

"At least hefty interest rate cuts and a modest fiscal boost seem to be doing something to prevent further sharp falls in sentiment," Capital Economics economist Jennifer McKeown commented.

Natixis analyst Costa Bruner welcomed the outcome and said the ZEW index is a good indicator of economic turning points.

Many analysts were unimpressed with the gain however and said a downbeat assessement of the current situation pointed to heavy falls in sentiment to come.

That measure fell sharply to minus 64.5 points from minus 50.4 points in November, its lowest level since July 2005, UniCredit Markets analyst Alexander Koch noted.

With the current conditions index falling rapidly, "things clearly look set to get worse in the near term," McKeown said.

ZEW president Wolfgang Franz agreed that "the German economy is slipping deeper into the recession" and added: "There is great uncertainty about the pattern of the business cycle in the next year."

Koch stressed that "the marked rise in the ZEW cannot hide the fact that the outlook of financial market experts on the economy definitely remains depressed."

McKeown said meanwhile that "with other more reliable indicators pointing to a severe recession, particularly in the industrial sector, the consensus forecast for a 0.4 percent fall in German GDP (gross domestic product) next year looks too optimistic."

Koch said that "for 2009, we expect the worst annual growth performance of the economy since WWII," with a forecast contraction of 1.5 percent.

For mid-2009, financial analysts estimated economic conditions would be comparable to those at present, ZEW president Franz said.

"The government is well-advised to launch a growth package, which, for example, includes infrastructure projects, instead of building (just) an economic straw fire by distributing consumption vouchers," he said.

The poll of 328 analysts and institutional investors was taken against a backdrop of recession in Europe\’s biggest economy, with auto manufacturers in particular hard hit by a drop in demand worldwide, and increasing divisions within the coalition government.

On Sunday, Economy Minister Michael Glos defied Chancellor Angela Merkel by issuing an urgent call for quick tax cuts.

Many have complained that Merkel has not moved faster to help Germans hit by the slowdown and her government partners are beginning to worry owing to general elections that are scheduled in September.

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