German Investor Confidence Increases to Three-Year High

German investor confidence climbed to the highest level in more than three years in September, signaling optimism that Europe’s largest economy will continue to grow amid a global recovery.

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 49.6 from 42 in August. That’s the highest level since April 2010. Economists predicted a reading of 45, according to the median of 37 estimates in a Bloomberg News survey.

Germany is poised to benefit from increased demand for its products after the 17-nation euro area, its biggest trading partner, emerged from the currency bloc’s longest-ever recession. Stronger growth in the U.S. and China, the world’s biggest economies, is also boosting confidence, just as Germany enters the final week of campaigns for parliamentary elections. At the same time, the European Central Bank has repeatedly warned that the euro-area recovery is fragile.

“The economy in Germany and the euro area is on the path to recovery,” said Thilo Heidrich, an economist at Deutsche Postbank AG in Bonn. “The signs are favorable for progress in the economic revival. Still, with an eye on the existing structural problems in many euro countries, we’re expecting a tough and lengthy recovery.”

Mixed Data

ZEW’s gauge of the current situation jumped to 30.6 in September from 18.3 in August, compared with the median forecast of 20 in the Bloomberg survey. An indicator of euro-area investor confidence increased to 58.6 from 44. The group surveyed 260 investors and analysts from Sept. 2 to Sept. 16.

The euro climbed 0.2 percent to $1.3366 at 2:34 p.m. Frankfurt time. Germany’s DAX stock index was down 0.2 percent after rising to a record yesterday.

“The financial-market experts hold the view that the German economy is still gaining momentum,” ZEW President Clemens Fuest said in the report. “In particular, the experts’ economic optimism has increased due to the improved economic outlook for the eurozone, although recently released economic data for Germany have fallen short of expectations.”

The German economy expanded 0.7 percent in the three months ended June and euro-area gross domestic product increased 0.3 percent to snap six quarters of contraction. German business confidence climbed to a 16-month high in August in a survey by the Ifo institute. Growth in euro-area services and factory output accelerated to the fastest since June 2011.

Car Sales

U.S. industrial production rose 0.4 percent in August, the most in six months, government data showed yesterday. China’s industrial output expanded at the fastest pace in 17 months and exports rose more than expected, signaling an economic rebound after slowing in the second quarter.

Other indicators have signaled an uneven recovery. Germany’s industrial output, factory orders and exports all fell in July from the prior month, while a consumer confidence gauge for September by GfK SE unexpectedly dropped. German growth is poised to stabilize after the second-quarter surge, the Bundesbank said on Aug. 19.

European car sales slid in August to the lowest level since records started in 1990, figures from the Brussels-based European Automobile Manufacturers’ Association showed today. Registrations dropped 4.9 percent to 686,957 vehicles from 722,458 cars a year earlier. Eight-month sales declined 5.2 percent to 8.14 million autos.

Fragile Recovery

Wolfsburg, Germany-based Volkswagen AG, Europe’s largest carmaker, plans to boost profitability at its mass-market brands even though the timing of a rebound in its home region remains uncertain. The VW car brand, the manufacturer’s biggest unit by vehicle sales, is forecast to lift its operating profit margin to more than 6 percent of sales from 3.5 percent last year, according to a Sept. 9 presentation by Chief Financial Officer Hans Dieter Poetsch.

The euro area’s seasonally adjusted exports fell 1.6 percent in July from the prior month, Luxembourg-based Eurostat said today. Imports dropped 0.1 percent. The region’s unadjusted trade surplus climbed to 18.2 billion euros ($24.3 billion) from 16.5 billion.

ECB President Mario Draghi said yesterday that the euro-area recovery “is only in its infancy” as he reiterated the bank’s pledge to keep its key interest rates at or below their current record lows for an extended period of time.

‘Green Shoots’

Chancellor Angela Merkel, who is seeking a third term as Germany’s leader in Sept. 22 elections, said last week that while the euro crisis isn’t over, “I see the first small green shoots giving us hope.” Her Christian Democrats lead the Social Democrats by 39 percent to 26 percent, according to a weekly Emnid poll for Bild am Sonntag.

“Financial investors are again increasingly bullish about the outlook for Germany’s economy,” said Thomas Harjes, senior European economist at Barclays Plc in Frankfurt. Investors “appear to expect a strong growth performance for the second half of 2013 based on strong domestic demand and an improving external environment, especially in other parts of the euro area,” he said.

In the U.K., inflation slowed in August as transport costs and prices for new autumn clothing ranges rose less than a year earlier, according to data from the Office for National Statistics in London today. Consumer prices increased 2.7 percent from a year earlier, the least in three months, compared with 2.8 percent in July.

Fed Purchases

Bank of England policy makers pledged last month to keep interest rates low until unemployment falls to 7 percent as long as inflation expectations don’t get dislodged. Governor Mark Carney told lawmakers last week that price gains will slow to the bank’s 2 percent goal in a little over two years, and that the policy objective is about “getting back in a responsible manner” to the target.

U.S. inflation also fell to a three-month low in August, according to Labor Department figures in Washington today. The consumer-price index increased 0.1 percent after a 0.2 percent gain in July. Prices increased 1.5 percent from a year earlier. Federal Reserve policy makers meet today and tomorrow to debate whether economic growth is strong enough to begin slowing the pace of bond purchases.

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