German Investor Confidence Rises as Recovery Strengthens

German investor confidence rose in June amid signs the recovery in Europe’s largest economy is gathering pace.

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, increased to 38.5 from 36.4 in May. Economists forecast a gain to 38.1, according to the median of 38 estimates in a Bloomberg News survey.

German industrial production rose the most in more than a year and exports increased more than forecast in April, government reports released this month showed. The data signal that growth in the German economy has accelerated since expanding just 0.1 percent in the three months ended March. The Bundesbank said yesterday that gross domestic product should improve “markedly” this quarter, while warning of a potential slowdown in coming months.

“Cautious optimism about Germany’s economic prospects is growing,” said Christian Schulz, senior economist at Berenberg Bank in London. “The key tail risk, the euro crisis, has faded from the headlines since the problems in Cyprus and Italy have been dealt with.”

ZEW’s gauge of the current situation unexpectedly fell to 8.6 from 8.9 in May, while an indicator of euro-area investor confidence climbed to 30.6 from 27.6. The euro traded little changed at $1.3372 at 12:03 p.m. in Frankfurt.

’Some improvement’

European Central Bank President Mario Draghi said today in Jerusalem that economic survey data for the euro-area economy are showing “some improvement, but from low levels.”

The ECB this month left its benchmark interest rate at a record low of 0.5 percent after cutting it by 25 basis points in May. Monetary policy will “remain accommodative for as long as necessary” and the Frankfurt-based central bank stands ready to act again if necessary, Draghi said today.

German industrial output jumped 1.8 percent in April from March as construction activity rebounded following winter temperatures that lasted longer than usual and postponed work. Exports climbed 1.9 percent. Economic confidence as measured by the Ifo Institute’s business climate index rose in May for the first time in three months.

“The German economy is likely to pick up speed in the second half of 2013,” ZEW president Clemens Fuest said today in a statement. “However, the results of the current survey indicate that the economy will improve rather slowly.”

Summer Slowdown

Signs are emerging of a slowdown in the summer months, the Bundesbank said yesterday in its monthly report. The central bank on June 7 reduced its 2013 growth projection to 0.3 percent from the 0.4 percent it predicted in December, citing the effects of a worse-than-expected first quarter and warning that the still-unsolved sovereign debt crisis poses risks to the recovery. The economy will grow by 1.5 percent in 2014, down from the previously-estimated 1.9 percent, it said.

Deutsche Lufthansa AG’s maintenance arm said on June 14 that it’s targeting contracts with low-cost airlines as the sovereign debt crisis continues to hurt profitability at its traditional customer base of network airlines.

German new car sales resumed a decline in May after increasing in April, the German Federal Motor Vehicle Office said June 4. The European auto market is contracting for a sixth consecutive year and is set for a two-decade low, figures from the Brussels-based European Automobile Manufacturers’ Association show.

Still, Daimler AG Chief Executive Officer Dieter Zetsche said last week that earnings have improved in the second quarter as new models win buyers and the Mercedes-Benz car unit reduces costs faster than anticipated.

“German growth prospects are not excellent, but not bad either,” said Evelyn Herrmann, an economist at BNP Paribas SA in London. “We expect to see slower growth in the third quarter again, as domestic demand will not fully offset the relatively weaker external sector.”

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