German Investor Confidence May Plunge as Europe's Debt Crisis Hurts Euro

German investor confidence probably plunged in May after Europe’s debt crisis stoked concern about the euro’s future, rattling financial markets.

The ZEW Center for European Economic Research will today say its index of investor and analyst expectations fell to 47 from 53 in April, according to the median of 35 forecasts in a Bloomberg News survey. ZEW releases the report, which aims to predict developments six months ahead, at 11 a.m. in Mannheim.

The euro has slumped 8 percent against the dollar in the past month as a 750 billion euro ($923 billion) rescue package from governments and the European Central Bank’s purchase of government bonds failed to stem speculation that the monetary union could collapse. At the same time, the weaker currency is boosting export competitiveness, helping the economic recovery gather pace.

“The discussion about Europe’s debt crisis will hurt confidence for some time,” said Joerg Lueschow, an economist at WestLB AG in Dusseldorf. “Still, the significance for the real economy is limited. The recovery won’t stall and the weaker euro isn’t so bad for German exports.”

Germany’s economy, Europe’s largest, unexpectedly grew 0.2 percent in the first quarter as rising exports and company investment outweighed a slump in construction caused by the harshest winter in 14 years. Latest data suggest growth accelerated this quarter as building sites reopened with the arrival of spring.

Business Confidence

Factory orders, industrial production and retail sales all rose in March and the Ifo institute’s measure of business confidence jumped to a two-year high in April.

Volkswagen AG, Europe’s largest carmaker, said yesterday that global sales increased 11 percent in April, helped by growing demand in China and the U.S.

Germany’s benchmark DAX share index has recovered from a drop earlier this month to be 1.8 percent ahead for the year.

The Bundesbank forecasts expansion of 1.6 percent this year after the economy contracted 5 percent in 2009, the most since World War II. The fiscal crisis that began with concern about Greece’s budget deficit could curb growth by forcing governments to rein in spending.

“The risk that the economic recovery in the European Union -- our most important export market -- receives a setback has increased because of the financial crisis in Greece,” Ulrich Lehner, president of the German Chemical Association, or VCI, said yesterday. The chemical industry won’t see “any significant growth” in coming months, he said.

European investor confidence fell the most in almost two years this month, the Sentix research institute said last week. The euro dropped to $1.2235 yesterday, a four-year low. It has dropped more than 18 percent since late November.

“It doesn’t look like we have to fear for the German economy,” said Jens Kramer, an economist at NordLB in Hannover. “But Greece will weigh on investor confidence. Market reactions, especially in foreign exchange markets, show that skepticism is warranted.”

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net.

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