Surprise as German economic confidence hits three-year high
GERMAN investor confidence unexpectedly rose to a three-year high in March, suggesting Europe's largest economy will return to growth.
The ZEW Centre for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, increased to 48.5 from 48.2 in February. That's the highest since April 2010. Economists had expected the index to fall.
The Bundesbank predicts the economy will expand in the current quarter after contracting 0.6pc in the final three months of last year. Business confidence improved for a fourth month in February.
Still, political turmoil in Italy and the spectre of a bank run in Cyprus are spooking financial markets and threatening to derail an economic recovery in the euro area, Germany's biggest export market.
The increase in the ZEW index "leaves it at a high level, but there is a clear risk that ongoing developments in Cyprus and Italy prompt renewed falls soon," said Jennifer McKeown, senior European economist at Capital Economics in London.
"We suspect that sentiment will weaken in the coming months and, while Germany should continue to easily outperform the rest of the eurozone, a strong recovery seems like too much to hope for."
ZEW's gauge of the current situation rose to 13.6 from 5.2 in February. ZEW said 13pc of the 245 responses to this month's survey were received yesterday, when news of the Cypriot levy on bank deposits sent the euro to its lowest level this year and caused stocks and commodities to tumble.
Moody's Investors Service said the Cypriot levy is negative for bank depositors across Europe.
ECB council member Ewald Nowotny yesterday urged the Cypriot government to find a "fast and responsible solution" to secure a European Union-led bailout, rein in uncertainty and prevent a freeze in spending and investment.
Volkswagen and BMW last week predicted a "difficult" 2013 as European car sales decline and vehicle prices in the region drop. (Bloomberg)