German investor confidence surged to a 10-month high in February as global growth improved and Europe’s debt crisis showed signs of abating.
The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, rose to 5.4 from minus 21.6 in January. That’s the highest since April 2011 and the third straight increase. Economists forecast a gain to minus 11.8, according to the median of 40 estimates in a Bloomberg News survey.
“The outcome is a positive surprise,” said Annalisa Piazza, a fixed-income analyst at Newedge Group in London. “Signs that the euro-area economy is stabilizing, rather than collapsing as some have feared, and hopes of a resolution of the debt crisis seem to have supported economic sentiment.”
Borrowing costs for debt-strapped nations such as Italy and Spain have fallen since the European Central Bank injected a record 489 billion euros ($647 billion) into the banking system and governments agreed to greater budget discipline in the 17-member euro area. At the same time, austerity measures across the region are damping demand for German goods, and Greece has yet to win a second bailout that would stave off a default and help Europe end the crisis.
‘Return to Growth’
The euro rose and European stocks climbed, extending the Stoxx Europe 600 Index’s biggest rally in a week.
“With confidence returning, the fundamentally very sound German economy can return to growth quickly” as long as “the hope that the euro-zone crisis is kept under control is not disappointed,” Christian Schulz, an economist at Berenberg Bank in London.
Earlier today, Japan’s central bank unexpectedly added 10 trillion yen ($128 billion) to an asset-purchase program and said it will target 1 percent inflation to revive an economy that shrank an annualized 2.3 percent last quarter.
In the U.K., Bank of England Governor Mervyn King said policy makers added another 50 billion pounds ($79 billion) of stimulus this month because they judged that there was a “downside” risk of inflation slowing too far beyond the 2 percent goal. U.K. inflation slowed to a 14-month low of 3.6 percent in January.
Moody’s Investors Service said yesterday it may strip France and the U.K. of their top Aaa credit grades as it cut the ratings of six European countries including Italy, Spain and Portugal, citing Europe’s debt crisis.
The Portuguese economy shrank for a fifth quarter in the three months through December, a report showed today, as the government cut spending and raised taxes to narrow its budget deficit.
Germany’s economy, Europe’s largest, probably contracted mildly in the final quarter of last year, the Federal Statistics Office said on Jan. 11. It will publish official data for the quarter at 8 a.m. tomorrow.
“The probability of a technical recession is very low,” said ZEW economist Marcus Kappler. “Only 20 percent of analysts saw a recession. The worst-case scenario is sluggish growth. The German economy is back on track.”
ZEW’s gauge of current conditions climbed to 40.3 from 28.4. Germany’s benchmark DAX Index has risen more than 14 percent this year.
Hugo Boss AG reported fourth-quarter operating profit on Feb. 9 that exceeded analysts’ estimates. The German luxury clothes maker forecasts revenue of 3 billion euros by 2015 as it opens more shops and increases sales in Asia and the U.S.
U.S. retail sales probably rose in January by the most in four months, led by growing demand for autos, economists said before a report later today. The projected 0.8 percent increase would follow a 0.1 percent December advance, according to the median forecast of 82 economists surveyed by Bloomberg News.
“We are seeing a world economy that’s growing again, including a more robust U.S.,” said Heinrich Bayer, an economist at Deutsche Postbank AG in Bonn. “The German economy is profiting from that.”
The International Monetary Fund on Jan. 24 cut its forecast for German growth this year by one percentage point to 0.3 percent, citing a growing threat of a euro-area recession.
The Bundesbank, which forecasts 0.6 percent growth for 2012, considers that view “too pessimistic,” and President Jens Weidmann said the economy should become more robust in the course of the year.
Carsten Brzeski, senior economist at ING Group in Brussels, said the ZEW report adds to evidence that the economy “has only gone through a soft patch at the end of last year” and “is not nearing the abyss.”
“Of course, despite the recent calm, the sovereign debt crisis could still easily derail the German economy in 2012,” he said.
The Greek parliament has passed legislation to enshrine in law further budget cuts that have been demanded by the European Union and IMF as a pre-condition for another 130 billion euros of aid. Euro-area finance ministers will meet in Brussels tomorrow to discuss disbursement of the funds.