German Investor Confidence Gains Amid Growth Signs

German investor confidence rose for a second month as Europe’s largest economy showed signs of picking up the pace of growth.

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, climbed to 34.9 in December from 11.5 in November. Economists had forecast an increase to 20, according to the median of 33 estimates in a Bloomberg News survey.

The Bundesbank said yesterday it sees initial signs that German economic growth could strengthen after a “modest” start to the fourth quarter. Gross domestic product effectively stagnated in the prior six months, contributing to a euro-area slowdown that has prompted the European Central Bank to consider adding stimulus.

“The German economy is fundamentally strong,” said Christian Schulz, senior European economist at Berenberg Bank in London. “If the external bad news with regard to Russia begins to dry up, then uncertainty fades and with a lag, economic activity will begin to improve.”

While international sanctions on Russia because of its involvement in the Ukraine crisis have weighed on trade, German factory orders and industrial production gained in October and business confidence climbed last month. The Bundesbank said in its monthly bulletin that a slump in oil prices will increase the purchasing power of households.

Price Pressure

ZEW’s assessment of the current situation rose to 10.0 in December from 3.3 the previous month.

“Confidence in the German economy seems to be slowly returning among the financial-market experts surveyed by ZEW,” Clemens Fuest, the institution’s president, said in a statement. The improvement in sentiment reflects “favorable economic conditions such as the weak euro and the low crude oil price,” he said. “However, we should be aware that the current optimism is fueled by factors that might change even over the short term.”

The euro is up 0.4 percent today and traded at $1.2489 at 11:52 a.m. Frankfurt time. Germany’s benchmark DAX Index reversed an earlier decline to climb 1 percent to 9,427.91.

Manufacturing and services in the 18-nation euro area barely expanded in December as sluggish growth in Germany and France kept business activity subdued. A composite index for both industries by Markit Economics released today rose to 51.7 from 51.1 in November. A reading above 50 indicates expansion.

Slowing Inflation

Euro-area inflation slowed to just 0.3 percent last month, matching a five-year low, and falling oil prices are likely to depress the rate further. ECB Chief Economist Peter Praet said last week that it could drop below zero in coming months.

The Governing Council will use its Jan. 22 monetary-policy meeting to consider expanding debt purchases beyond covered bonds and asset-backed securities to prevent a spiral of declining prices and households postponing spending. More than 90 percent of economists in Bloomberg News’ monthly survey predict the ECB will start quantitative easing next year, with an announcement most likely in the first quarter.

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