German investor confidence at 3-year high

German investor confidence at 3-year high
By Ralph Atkins in Frankfurt
Copyright The Financial Times Limited 2009
Published: May 19 2009 11:06 | Last updated: May 19 2009 14:35
http://www.ft.com/cms/s/0/c54e16c0-445a-11de-82d6-00144feabdc0.html


German investor optimism has hit the highest level for almost three years, according to a survey that added to the evidence the country’s recession could be over later this year.

The Mannheim-based ZEW institute said its economic sentiment index had leapt more-than-expected this month to the highest since June 2006, buoyed by signs that an economic recovery is underway after the savage contraction in activity late last year and early in 2009.

If supported by other surveys and economic data, the latest rise could encourage hopes that German gross domestic product will start expanding in the second half of the year as emergency government measures take effect. However, further sharp rises in unemployment and the still-uncertain global economic environment mean growth rates are expected to remain modest well into next year.

The ZEW index, which monitors expectations regarding economic activity in the next six months, rose for the seventh consecutive month to 31.1 points, up from 13.0 in April. It was also the first time since June 2006 that the index was above its historical average, currently 26.2 points.

Wolfgang Franz, ZEW’s president, said than on economic growth, “more and more signs indicate that the worst seems to be over” but he warned that in labour markets the worst was still to come.

After the failure of Lehman Brothers in September last year, Germany proved particularly vulnerable to the collapse in global economic confidence and demand – which led to the ZEW index plunging.

German GDP contracted by 3.8 per cent in the first three months of the year – the largest quarterly drop since records started in 1970. The European Commission expects the country’s economy to contract by more than 5 per cent overall this year. But Germany’s reliance on exports means it could also benefit earlier than others from any revival in world trade, economists believe.

Andreas Rees, economist at Unicredit in Munich, argued the “v-shaped” recovery in the ZEW index since October has been partly psychologically-driven, after an economic meltdown was averted. At the same time, a sharp reduction in inventories at German companies was expected to boost production, even if demand recovers only modestly, while government fiscal stimulus programmes would also help, “probably leaving a positive impact after the summer break”.