German Investor Confidence Drops More Than Estimated on ECB Rate, Prices

German investor confidence fell more than economists forecast in April after the European Central Bank raised interest rates to curb inflation.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict developments six months in advance, declined to 7.6 from 14.1 in March. Economists expected a drop to 11.3, according to the median of 36 estimates in a Bloomberg News survey.

“Observers are still unsure how long the German economy can maintain its very high pace,” said Ralph Solveen, an economist at Commerzbank in Frankfurt. “The numerous current crises -- in Japan, North Africa and Europe -- probably added to this uncertainty.”

Doubt over the economic outlook has increased after oil prices surged, the ECB lifted its key rate from a record low and the region’s sovereign debt crisis forced Portugal to follow Greece and Ireland in seeking financial assistance. At the same time, latest data suggest the German economy, which grew a record 3.6 percent last year, enjoyed a robust first quarter. The country’s leading economic institutes last week predicted growth of 2.8 percent for 2011.

ZEW’s measure of current economic conditions rose to 87.1, the highest since July 2007, from 85.4 the previous month. The euro was little changed after the report at $1.4439.

German bunds rose after the report. The yield on the benchmark 10-year bund slipped three basis points to 3.47 percent as of 12:37 p.m. in London. It yesterday reached 3.50 percent for the first time since Aug. 13, 2009. The two-year note yield also fell three basis points, to 1.89 percent.

Faster Inflation

The benchmark DAX share index has gained 10 percent since March 16 and is up 4 percent for the year. Factory orders and industrial production both rose for a second month in February, the Economy Ministry said last week.

Business confidence held close to a record high in March, and unemployment fell to a 19-year low of 7.1 percent as companies stepped up hiring to meet demand.

Still, German inflation unexpectedly accelerated to 2.3 percent last month after oil prices surged to more than $110 a barrel, a Federal Statistics Office report showed today.

The ECB, which lifted its benchmark rate last week by 25 basis points to 1.25 percent, aims to keep euro-area inflation below 2 percent.

The decline in the ZEW index “is consistent with growth slowing down this year after what will probably have been a very strong first quarter,” said Aline Schuiling, an economist at ABN Amro in Amsterdam. “Sentiment was probably hurt by the rise in oil prices and the first ECB rate hike.”

Slower Growth

While Germany’s Bayerische Motoren Werke AG expects sales in China to grow at a “double-digit” percentage rate this year, they may not match last year’s pace, Ian Robertson, the luxury carmaker’s sales chief, said in an interview with Bloomberg Television yesterday.

Siemens AG, Europe’s largest engineering company, expects earnings growth to slow in the second half of this year, Chief Financial Officer Joe Kaeser said April 5, causing the stock to fall the most in 20 days.

Schaeffler Group, the world’s second-largest maker of roller bearings, said on March 29 that its profit margin may shrink this year as a result of higher prices for energy, steel and aluminum.

“A number of risk factors have come together to damp the mood a bit,” said Joerg Lueschow, an economist at WestLB in Dusseldorf. “Germany has also been in a powerful recovery for more than a year and a half. That has to slow down sometime.”

To contact the reporters on this story: Jeff Black in Frankfurt at Jblack25@bloomberg.net;

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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