German investor confidence rose for the first time in five months in September after the European Central Bank unveiled a plan to buy government bonds to stem the sovereign debt crisis.
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, climbed to minus 18.2 from minus 25.5 in August. Economists forecast a gain to minus 20, according to the median of 41 estimates in a Bloomberg News survey.
German stocks have risen to a 14-month high since ECB President Mario Draghi said on Sept. 6 the bank may buy unlimited amounts of government bonds to contain yields in countries that seek assistance from Europe’s bailout fund. Market sentiment has also been boosted by Germany’s constitutional court clearing the way for ratification of the permanent rescue fund, and by the U.S. Federal Reserve’s announcement of a third round of asset purchases to stimulate growth and employment in the world’s largest economy.
“Draghi may have saved Germany,” said Holger Schmieding, chief economist at Berenberg Bank in London. “The gain in ZEW investor confidence today is the first tentative sign that the ECB, by vowing to run an effective rather than a toothless monetary policy in the future, will keep Germany out of recession.”
Still, ZEW’s gauge of the current situation fell to 12.6, the lowest since June 2010, from 18.2 in August. The euro declined after the report to at $1.3060 at noon in Frankfurt, down 0.4 percent on the day.
European stocks dropped the most in two weeks amid mounting concern that bond yields will rise if Spain delays seeking a bailout, signaling the region’s debt crisis is far from over. The Stoxx Europe 600 Index lost 0.7 percent to 273.01. U.S. index futures and Asian shares also fell.
The rise in the main ZEW index “clearly reflects the positive reaction to the ECB’s announcement of the new bond-buying program,” said Aline Schuiling, an economist at ABN Amro NV in Amsterdam. “Nevertheless, we expect the German economy to grow only moderately in the second half this year, as exports and the industrial sector will continue to feel the consequences of a weak euro-zone economy and sluggish world trade growth.”
Growth in Europe’s largest economy will slow to 0.8 percent this year from 3 percent last year before picking up to 1.1 percent in 2013, the Kiel-based Institute for the World Economy said on Sept. 13. The pace of expansion eased to 0.3 percent in the second quarter from 0.5 percent in the first as budget cuts and recessions in euro-area trading partners eroded demand for German exports.
Germany’s Volkswagen AG, Europe’s largest carmaker, has reduced its internal sales forecast for 2012 by as many as 100,000 vehicles as a result of the debt crisis, according to a person familiar with the matter.
At the same time, industrial production, factory orders and exports all rose in July, suggesting the economy made a good start to the third quarter. Unemployment at a two-decade low is also bolstering domestic demand, helping Germany to outperform its neighbors.
While those indicators show “the relative robustness of the economy,” weaker demand for German exports “should increasingly dampen growth in the period ahead,” said Carsten Brzeski, senior economist at ING Group in Brussels.
At least five of the 17 nations using the euro are in recession, including Spain and Italy. The European Commission forecasts a 0.3 percent contraction for the region as a whole this year.
In the U.K., inflation slowed to 2.5 percent in August from 2.6 in July, the Office for National Statistics said today in London. The Bank of England has forecast that inflation will continue to ease toward its 2 percent target.
In China, a report showed prices for newly constructed homes rose in fewer cities in August than in the previous month, reducing the likelihood that policy makers will strengthen steps designed to constrain property prices.
The U.S. may today report a $125 billion current-account deficit for the second quarter, down from $137.3 billion in the first three months of the year, a survey of analysts shows.
While additional stimulus from the ECB and the Fed may improve sentiment, “the fundamental outlook remains challenging, especially given the global trade cycle,” said Nick Matthews, a senior European economist at Nomura International in London.
After the ECB injected more than 1 trillion euros ($1.3 trillion) into the banking system earlier this year, “the ZEW jumped about 30 points, but then we had an escalation in market tensions and it took back all that ground,” Matthews said.