German Investor Confidence Up as Euro Area Resumes Growth
German investor confidence increased more than economists expected in August as the recovery in Europe’s largest economy helped pull the euro area out of its longest-ever recession.
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 42 from 36.3 in July. That’s the highest level since March. Economists predicted 39.9, according to the median of 42 estimates in a Bloomberg News survey.
Growth in Germany may have exceeded economists’ forecasts in the second quarter, according to a government estimate, coaxing the 17-nation region out of a six-quarter slump. Paired with accelerating growth in the U.S. and a pickup in Chinese exports and manufacturing, signs of a global economic recovery are increasing.
“Better-than-expected data from China and the U.S. are reflected in investor confidence,” said Aline Schuiling, senior economist at ABN Amro Bank NV in Amsterdam. “The fundamentals of the German economy are healthy and that should help other European countries grow. But there’s still a risk that the debt crisis will flare up again.”
ZEW’s gauge of the current situation jumped to 18.3 from 10.6 in July, while an indicator of euro-area investor confidence increased to 44 from 32.8. The group surveyed 252 investors and analysts from July 29 to Aug. 12.
“First signs of an end to the recession in important euro-zone countries may have contributed to the indicator’s rise,” ZEW said in a statement. “This is also reflected by the strong increase of economic expectations for the euro zone. Furthermore, the economic optimism is supported by the robust domestic demand in Germany.”
The euro rose after the report and traded at $1.3302 at 11:07 a.m. in Frankfurt.
The German economy probably expanded about 0.75 percent in the second quarter, the Economy Ministry estimates. Economists project growth of 0.6 percent, according to the median of 47 forecasts in a separate survey. The Federal Statistics Office will release the data at 8 a.m. tomorrow.
The country’s benchmark DAX (DAX) index has risen more than 5 percent since July 4, when European Central Bank President Mario Draghi pledged to keep interest rates low for an extended period to rekindle growth in the euro area. Gross domestic product in the region rose 0.2 percent in the three months through June, economists predict. That report is due at 11 a.m. tomorrow.
While parts of southern Europe remain mired in a slump and almost one in four young people in the euro area are without a job, German industrial production, factory orders and exports all rose in June, and business confidence improved for a third month in July. The data bode well for Chancellor Angela Merkel, who is seeking a third term in Sept. 22 elections.
Kloeckner & Co SE (KCO), a German steel trader part-owned by the Knauf family, said on Aug. 7 it expects profit to revive next year on gains in the U.S., an improvement in prices and restructuring efforts after lowering its 2013 earnings outlook.
Henkel AG, the German maker of Loctite glue and Fa soap and deodorant, reported second-quarter profit that beat estimates, helped by revenue growth in its home-care and laundry division in emerging markets.
At the same time, Adidas AG (ADS) cut its 2013 revenue forecast last week because of “lackluster” sales of sporting goods in Europe and unfavorable currency impacts after reporting second-quarter profit that trailed analysts’ estimates.
European countries accounted for 69 percent of German exports last year, according to the Federal Statistics Office. About 16 percent of goods went to Asia and 12 percent to the U.S.
The Bundesbank predicts Germany’s economy will grow 0.3 percent this year and 1.5 percent in 2014. That compares with a 0.6 percent contraction in the euro area in 2013 and growth of 1.1 percent next year, according to the latest ECB forecasts.
“The German economy has gained traction and continues to be a stable anchor in Europe,” said Lothar Hessler, an economist at HSBC Trinkaus & Burkhardt AG (TUB) in Dusseldorf. “Low unemployment is supporting private consumption. The question is when investment activity will pick up again.”
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