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German Investor Confidence Unexpectedly Fell in November

German Investor Confidence Unexpectedly Declined in November
Siemens AG, the biggest engineering company in Europe, on Nov. 8 unveiled a 6 billion-euro ($7.6 billion) savings plan to restore profitability, acknowledging it was slow to react to shrinking demand. Photographer: Michele Tantussi/Bloomberg

German investor confidence unexpectedly declined in November as the sovereign debt crisis curbs growth in Europe’s largest economy.

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, fell to minus 15.7 from minus 11.5 in October. That’s the first drop since August. Economists forecast an increase to minus 10, according to the median of 43 estimates in a Bloomberg News survey.

Today’s report is the latest to suggest that the debt crisis is finally taking its toll on Germany. Exports, factory orders and industrial production all fell more than forecast in September. Growth ground to a near standstill in the third quarter, according to a Bloomberg survey of economists, and the Bundesbank says the deterioration probably continued in the fourth.

“In a nutshell, the ZEW survey started to incorporate the bad news coming from the German economy,” said Annalisa Piazza, a strategist at Newedge Group in London. “We don’t expect the German economy to collapse anytime soon, but weakness is certainly likely to prevail in the second half of 2012.”

Euro, Stocks Retreat

The euro fell after the report and traded at $1.2683 at 11:55 a.m. in Frankfurt, down 0.2 percent today. European stocks fell for a fifth day after euro-area finance ministers and the International Monetary Fund failed to agree on how Greece will repay its debt. The Stoxx Europe 600 Index dropped 0.6 percent to 268.

ZEW said its gauge of current economic conditions in Germany eased to 5.4 -- the lowest since June 2010 -- from 10 in October.

Growth slowed to 0.3 percent in the second quarter from 0.5 percent in the first as budget cuts and recessions in Germany’s euro-area trading partners eroded demand for its exports.

Third-quarter growth data will be released on Nov. 15. Economists predict just 0.1 percent expansion, according to the Bloomberg survey. That will be followed “by stagnation or even a slight decrease in gross domestic product in the final quarter of the year,” the Bundesbank said on Oct. 22.

Weaker Earnings

Siemens AG, the biggest engineering company in Europe, on Nov. 8 unveiled a 6 billion-euro ($7.6 billion) savings plan to restore profitability, acknowledging it was slow to react to shrinking demand. Chief Executive Officer Peter Loescher said some job losses will be inevitable.

Commerzbank AG, which is forgoing its dividend, on Nov. 8 reported profit that missed analysts’ expectations on losses from non-core assets and a decline in consumer banking earnings.

Some companies are compensating for lower demand within the euro area with exports to faster growing regions. Germany’s shipments to non-European Union countries were up 10.4 percent in the nine months through September from the year-ago period.

Bayerische Motoren Werke AG stands by its plans to increase 2012 profit, Chief Financial Officer Friedrich Eichiner said on Nov. 6. The world’s biggest maker of luxury cars posted third-quarter earnings that beat analyst expectations, helped by growth in the U.S. and Asia.

Still, “Germany cannot decouple from the recessions around it,” said Marcus Kappler, an economist at ZEW in Mannheim. “A likely scenario is that the German economy will do slightly worse than expected, but without turning into negative growth.”

Euro-Area Recession

The euro-area economy will contract 0.4 percent this year and expand just 0.1 percent next year, according to the European Commission. By contrast, it forecasts growth of 0.8 percent in Germany this year and next.

Financial markets have rallied since European Central Bank President Mario Draghi pledged to do whatever it takes to save the euro and unveiled a plan to buy government bonds. Germany’s benchmark DAX share index has rallied more than 12 percent since late July.

At 6.9 percent, Germany’s jobless rate is still close to a two-decade low. Consumer confidence will rise to a five-year high this month, according to market research company GfK.

“The German economy is still quite solid,” said Ralph Solveen, head of economic research at Commerzbank in Frankfurt. “Once Draghi’s medicine for the euro area kicks in, we will see a strong comeback. But I wouldn’t expect this to happen before the beginning of next year.”

Global Economy

Elsewhere in Europe, U.K. inflation accelerated more than economists forecast in October as higher university tuition fees pushed consumer-price growth away from the Bank of England’s target. Consumer prices rose 2.7 percent from a year earlier, the fastest since May, compared with a near three-year low of 2.2 percent in September, the Office for National Statistics said in London today.

In Asia, Japanese consumers are closing their wallets as the economy’s outlook darkens, making it harder for Prime Minister Yoshihiko Noda to stave off the nation’s third recession in four years.

Households are holding the most cash since 2005, shunning risk as they grow gloomier, Bank of Japan data shows. Sliding private consumption contributed to an annualized 3.5 percent decline in gross domestic product in the past quarter, a Cabinet Office report showed yesterday.

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