Tuesday June 16, 06:22 PM
German investor confidence index hits three-year high
By William Ickes
FRANKFURT (AFP) - The ZEW investor confidence index jumped to a three-year high in June, signalling Tuesday that the German economy, Europe's biggest, may be slowly getting through its worst recession since 1945.
The ZEW index, which measures the confidence of financial market players, soared 13.7 points from May to 44.8 points, the ZEW institute said, the eighth rise running and the highest level since May 2006.
Analysts had pencilled in a gain to 37 points in Germany, which is suffering its worst recession since World War II, and the news pushed up the euro.
The survey was echoed by the German Chamber of Commerce (DIHK) which said its own poll of more than 20,000 companies in April and May showed an improved outlook for the first time in two years amid greater optimism in the industrial sector.
"The assessment of the experts indicates that the economic downturn dynamics are currently coming to rest," a ZEW statement quoted president Wolfgang Franz as saying.
In addition, current conditions were seen as better for the first time since the US investment bank Lehman Brothers (NYSE: LEH - news) collapsed in September 2008, the institute said.
"The repeated recovery of economic sentiment reveals a consolidating optimism among the financial market experts, even though the industrial production and incoming orders do not yet show a clear upward trend," it added.
German industrial orders and output posted record drops in April, defying experts who believe the recession had reached a bottom.
Postbank economist Fabienne Riefer noted that "the exit from recession should nonetheless be arduous" and the Ifo survey of business confidence due Monday should give a more comprehensive picture.
The government expects the German economy to contract by six percent this year and the country's jobless rate of 8.2 percent is tipped to keep climbing well into 2010.
Unemployment across the 16-nation eurozone, where a record 1.2 million people lost their jobs in the first three months of this year, is a major obstacle to an economic rebound.
In addition, "the upward path will be very bumpy, not the least because the financing of new orders will be difficult for many companies," a DIHK report said.
Some economists say Germany, the world's leading exporter, has become too dependent on foreign orders, but Chancellor Angela Merkel told business leaders Monday: "I believe there is no alternative to being a country with strong exports.
"Otherwise we are putting our standard of living at risk."
Economist Jennifer McKeown at Capital Economics said "the sharper than expected rise in the German ZEW index confirms that more and more investors expect economic conditions to improve, albeit from an extremely weak starting point."
ZEW said the experts it surveyed reported "increasing confidence in the further development of the banking sector. This can be seen as a positive signal with respect to future lending conditions by banks."
The European Central Bank warned Monday of risks still facing the sector and said eurozone banks might have to take another 283 billion dollars (205 billion euros) in writedowns by the end of 2010 to cover for risky loans.
Commerzbank (Xetra: 803200 - news) analyst Simon Junker, noted however, that "for the first time since the Lehman shock, most analysts now anticipate an improvement in the economic situation within the next six months.
"In the second half of the year, the economy should grow again," he said.
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