German investor confidence continues to rise - ZEW index at highest since May 2006

German investor confidence continues to rise - ZEW index at highest since May 2006
By Ralph Atkins in Frankfurt
Copyright The Financial Times Limited 2009
Published: June 16 2009 13:23 | Last updated: June 16 2009 13:23
http://www.ft.com/cms/s/0/a6520e0e-5a65-11de-8c14-00144feabdc0.html


German investor confidence has risen for the eighth consecutive month to the highest since May 2006, according to a survey that added to evidence that the recession in Europe’s largest economy is easing.

The steep rise in Mannheim-based ZEW institute’s economic sentiment index surprised economists, who warned the survey may be exaggerating the scale of the turnaround. Signs of a recovery have been scant in official eurozone data, for instance for industrial production.

But the increase from 31.1 points in May to 44.8 points in June in the ZEW index boosted hopes that other economic indicators would also soon flag a nascent recovery. Wolfgang Franz, ZEW’s president, said the “cautious optimism” signalled in the survey should “not be destroyed by overly pessimistic projections”.

The ZEW index, which is regarded by economists as offering a guide to future trends in economic activity, fell steadily throughout last year but has since recovered strongly and is currently significantly higher than its historical average of 26.3 points.

Germany’s economy was among the worst hit by the collapse in global demand that followed the failure of Lehman Brothers investment bank last year. Gross domestic product fell by 3.8 per cent in the first quarter of this year – far faster than in the US or UK.

Simon Junker at Commerzbank argued the ZEW had in the past signalled turning points in industrial production and “now suggests that this will reach the trough in the next few months”. He added: “In the second half of the year, the economy should grow again.”

Separately, Eurostat, the European Union’s statistical office, confirmed that annual eurozone inflation had fallen to zero in May, down from 0.6 per cent in April and the lowest since at least 1991. The deceleration reflected steep falls in oil prices. But Eurostat also reported that annual “core” inflation, excluding volatile energy and unprocessed food prices, also fell last month – to 1.5 per cent from 1.7 per cent in April.

The European Central Bank, which aims to keep annual inflation “below but close” to 2 per cent, has cut interest rates to just 1 per cent, the lowest ever.