German investor confidence posts surprise increase

March 17th, 2009 - 6:56 pm ICT by IANS  

Berlin, March 17 (DPA) German investor confidence recorded a surprise increase in March to record its fifth consecutive monthly rise, a key indicator released Tuesday showed, amid hopes of further rate cuts and a turnaround in Europe’s biggest economy later in the year.
After posting a big jump in February, the Mannheim-based Centre for European Economic Research (ZEW) said its index measuring the sentiment among analysts and institutional investors edged up to minus 3.5 points this month from minus 5.8 last month.

“According to the financial market experts, the economic slowdown is gradually phasing out,” said ZEW chief Wolfgang Franz releasing the survey. “The bottom of the recession is likely to be reached this summer.”

“The economic situation is extremely bad, but there are first signs of hope. They should not be played down,” he said.

The March increase came despite a steady stream of bleak economic data with German exports, industrial production and factory orders falling much more sharply than predicted by economists.

At the same time, the European Central Bank (ECB) has revised down its economic growth projections for the 16-member eurozone predicting the currency bloc’s economy will contract by 2.7 percent this year and stagnate in 2010 as it slowly drags itself out of recession.

“Slowly but surely, German investors are gaining confidence,” said ING economist Carsten Brzeski. But he warned: “Things will still get worse before they become better for the German economy.”

Indeed, while those responding to the ZEW survey believe that the round of national government stimulus packages and global rate cuts will help to lay the foundations for a pickup in the German economy six months down the track, they remained downbeat about current business conditions.

The component of the ZEW indicator measuring existing economic situation in Germany slipped in March by 3.2 points to minus 89.4 points.

Based on a survey of 291 analysts, the ZEW indicator often sets the scene for other major European economic sentiment surveys released later in the month, including Germany’s closely watched Ifo business confidence survey.

Also helping to boost the overall ZEW index in March were expectations that the Frankfurt-based ECB will press on with its rate-cutting cycle another delivering hefty 50 basis points reduction.

This brought the ECB’s benchmark refinancing rate down to an historic low of 1.5 percent this month.

However, economists believe the string of dramatic falls in key hard economic data since the start of 2009, points to the German economy contracting sharply again in the first quarter of the year after it shrunk by 2.1 percent in the final three months of 2008.

“March’s small rise in the German ZEW economic expectations index is a modestly encouraging sign for the future, but it does not change the fact that the economy probably contracted very sharply again in the first quarter,” said Jennifer McKeown, European economist with the research group Capital Economics.

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