German investor confidence probably increased for a fifth month in March as the recovery in Europe’s largest economy broadened.
The ZEW Center for European Economic Research in Mannheim will say its index of investor and analyst expectations, which aims to predict developments six months in advance, rose to 15.9 from 15.7 in February, according to the median of 31 estimates in a Bloomberg News survey. That would be the highest since July. ZEW releases the report at 11 a.m. today.
German companies are increasing investment and hiring to meet booming export orders, fueling domestic spending and putting the economic recovery on a firmer footing. Still, surging energy costs are stoking inflation, prompting the European Central Bank to signal it may raise interest rates next month, and stocks fell globally yesterday after Japan’s biggest earthquake on record. Germany’s DAX Index (DAX) has shed 7 percent in the past four weeks.
“In Germany, we’re observing a broad-based economic recovery whose foundations are becoming stronger and stronger,” said Christian Melzer, an economist at Dekabank in Frankfurt. “At the same time, political tensions in Libya, higher commodity prices, faster inflation, a looming interest-rate increase and the consequences of the Japanese earthquake may weigh on investor confidence.”
ZEW’s indicator measuring current economic sentiment probably rose to 86 in March from 85.2 in February, according to the Bloomberg survey. That would be the highest since July 2007.
The Bundesbank expects Germany’s economy to expand 2.5 percent this year after record growth of 3.6 percent in 2010.
German carmakers are forecasting sales gains this year on higher spending in the U.S. and growing wealth in China. Volkswagen AG (VOW) is adding shifts to meet demand, Chief Executive Martin Winterkorn said on March 10. The same day, Bayerische Motoren Werke AG (BMW), the world’s largest maker of luxury vehicles, reported 2010 profit that beat analysts’ estimates.
The improving outlook has fueled hiring, pushing the German jobless rate down to 7.3 percent last month, the lowest since December 1991. Factory orders jumped 2.9 percent in January and manufacturing growth accelerated in February.
European Central Bank President Jean-Claude Trichet signaled on March 3 that the bank is ready to raise interest rates next month after inflation in the 17-nation euro region accelerated to 2.4 percent in February, breaching the ECB’s 2 percent limit for a third month.
“The prospect of higher interest rates is not exactly inspiring markets,” said Andreas Moeller, an economist at WGZ Bank in Dusseldorf. “While an increase is not going to kill off the recovery, it’s enough to slow it down in some periphery countries.”
The 8.9-magnitude earthquake and tsunami that struck Japan on March 11, possibly killing more than 10,000 people, may also have an adverse impact on Europe’s economy. Germany’s Metro AG, the world’s third-largest retailer, said all of its stores in Japan were damaged.
“It’s difficult to gauge the impact of the Japanese earthquake on the various economies,” said Joerg Lueschow, an economist at WestLB AG in Dusseldorf. “Parts of the country are so destroyed that there won’t be any production any time soon. The Japanese economy will probably shrink this quarter and next and that will also have an effect on trading partners. Certainly, the risks for the euro area’s economic outlook have increased.”
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