ZEW April Investor Confidence Dropped More Than Forecast

German investor confidence declined more than economists forecast in April, suggesting the recovery in Europe’s largest economy may struggle to gain momentum.

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 36.3 from a three-year high of 48.5 in March. It was the first drop in five months. Economists forecast a retreat to 41, according to the median of 40 estimates in a Bloomberg News survey.

Business sentiment weakened in March amid renewed concerns about the sovereign debt crisis and the recession in the euro area, Germany’s largest export market. Still, the German economy probably returned to growth in the first quarter after shrinking 0.6 percent in the final three months of 2012.

“I wouldn’t see this as a turnaround, but it does raise doubts about the strength of the economy,” said ZEW President Clemens Fuest. “It’s another piece of evidence that euro-area weakness is affecting Germany.”

ZEW’s gauge of the current situation slipped to 9.2 from 13.6 in March. Economists had predicted an increase to 14.

Market Reaction

The euro dropped after the report before recovering to trade at $1.3079 at 11:49 a.m. in Frankfurt, up 0.3 percent today. Europe’s benchmark Stoxx 600 index fell 0.5 percent to 288.93, while the yield on Germany’s benchmark 10-year bond rose 2 basis points to 1.26 percent.

Bundesbank President Jens Weidmann said on April 13 he doesn’t “share the pessimism over the German economic outlook” and sees no need to revise his institution’s forecasts.

The Frankfurt-based Bundesbank predicts German gross domestic product will grow 0.4 percent this year. By contrast, the European Central Bank forecasts that euro-area GDP will contract 0.5 percent.

A gauge of German manufacturing output unexpectedly showed contraction in March, unemployment increased, and the benchmark DAX share index has declined more than 4 percent in the past month. At the same time, factory orders rebounded in February and retail sales rose for a second month.

“The data haven’t been overwhelming, but much speaks for the fact that the German economy has passed the trough,” said Jens Kramer, an economist at NordLB in Hanover. “Growth wasn’t super strong in the first quarter but it will stabilize in the course of the year.”

Sales Decline

Sales at Continental AG, Europe’s second-largest maker of auto parts, fell more than anticipated in the first quarter and operating profit declined from a year earlier, spokeswoman Antje Lewe said yesterday.

Daimler AG, the world’s third-largest maker of luxury vehicles, will update its targets for 2013 when it reports first-quarter earnings later this month after many auto markets started the year weaker than expected.

Since the beginning of the year, demand “has fallen more sharply than expected and we don’t anticipate much tailwind in the coming months either,” Chief Executive Officer Dieter Zetsche said on April 10.

Euro-area inflation slowed to 1.7 percent in March from 1.8 percent in February amid record unemployment and recession.

U.K. Inflation

Elsewhere in Europe, U.K. inflation was unchanged in March at 2.8 percent, extending its run above the Bank of England’s target and maintaining a squeeze on consumers. Factory-gate prices rose 0.3 percent from February and were up 2 percent from a year earlier.

In Asia, South Korea unveiled a 17.3 trillion won ($15.4 billion) supplementary budget to support exporters. The Reserve Bank of Australia said the inflation outlook gives it room to reduce borrowing costs to a record low even as earlier rate cuts boost demand. Sri Lanka kept interest rates unchanged for a fourth month.

U.S. industrial production probably rose in March while core consumer prices were unchanged from a month earlier, two separate Bloomberg surveys showed. Data may show builders in March began work on the second-highest number of U.S. homes in almost five years.

“In the first four months of the year, we’ve hit every stumbling bloc on the way to a recovery” in Germany, said Andreas Scheuerle, an economist at Dekabank in Frankfurt. “But I’m rather relaxed. We’re not ringing in another slump.”

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