German investor confidence hits 21-month low
German investor confidence fell to a 21-month low in October as weaker global growth and a stronger euro dimmed the export outlook.
The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict developments six months ahead, dropped for a sixth month, to minus 7.2 from minus 4.3 in September.
While the reading was the lowest since January 2009, ZEW’s gauge of the current situation jumped to 72.6, a three-year high.
Europe’s largest economy may cool after expanding at the fastest pace in two decades in the second quarter as foreign sales, the main driver of growth, lose momentum.
At the same time, falling unemployment is boosting household confidence and spending, prompting the Bundesbank to predict yesterday that growth may exceed 3pc this year.
The benchmark DAX share index has gained 10pc since August 30 and extended its gain today after ZEW’s report.
The decline in the headline number “probably reflected some concerns about the global headwinds facing Germany,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt.
“However, it is absolutely no reflection on the underlying strength of the German economy. Domestic demand is finally picking up, so ZEW should stabilise in the coming months.”
The euro rose a third of a cent to $1.3956 after the ZEW data. It has jumped 16pc against the dollar since June 7, threatening to hurt sales outside the currency bloc just as the global recovery weakens.
German exports declined for a second month in August.
The International Monetary Fund said on October 6 it expects the world economy to expand 4.2pc next year instead of a previously projected 4.3pc. In 2010, the economy may grow 4.8pc, the Washington-based fund said.
With governments across the euro region cutting spending and raising taxes to push down budget deficits, German companies are relying on faster-growing markets in Asia to boost sales.
Bayerische Motoren Werke AG and Daimler AG’s Mercedes-Benz, the two biggest makers of luxury vehicles, this month projected higher fourth-quarter sales on surging demand in China.
German exports will rise at the fastest pace in a decade this year, led by demand for cars and machinery from outside Europe, the BGA federation said today.
Exports will grow by about 16pc, the Berlin-based group said, revising its forecast up from about 10pc.
The Bundesbank said yesterday that domestic demand is also “increasingly aiding the economy.”
Hugo Boss AG, the German luxury clothier, on October 14 raised its sales and earnings forecast for this year after reporting a 19pc increase in third-quarter revenue.
“We’ve seen a tremendous increase in expectations for private consumption,” ZEW economist Michael Schroeder said.
Consumers may step up spending as companies add workers, Germany’s leading economic institutes said October 14. The country’s unemployment rate will drop to 7pc in 2011 from 7.7pc this year, the institutes said.
“Consumer spending may not be able to fully compensate for falling exports, but the global slowdown might not be as pronounced as many people fear,” said Alexander Koch, an economist at Unicredit Group in Munich. “Either way, if anyone can cope with a stronger euro, it’s Germany.”