German Investor Confidence Fell to 19-Month Low in September

Bloomberg--German investor confidence fell more than economists forecast to an 19-month low in September as budget cuts across the euro region and slowing global growth clouded the outlook for Europe’s largest economy. 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 to minus 4.3 from 14 in August. That’s the fifth monthly decline and the lowest since February 2009. Economists had forecast a reading of 10, according to the median of 36 estimates in a Bloomberg News survey.

Investors are growing more concerned that the global rebound from last year’s recession is fading as stimulus ebbs and governments look to reduce budget shortfalls. In the U.S., the economy slowed more than economists forecast in the second quarter. In Europe, concern over the fiscal health of nations from Portugal to Ireland has helped push the euro down 10 percent against the dollar this year. Today’s ZEW result “is marking the turning point for the economy,” said Alexander Koch, an economist at UniCredit Group in Munich. “Growth has peaked and unfortunately the risk of a double dip has not been banished as the outlook for the global economy remains uncertain. However, the current ZEW level does not indicate a slide back into recession.” The euro dropped a third of a cent after the report and traded at $1.2854 at 11:19 a.m. in Frankfurt.

Current Conditions

ZEW’s gauge of current conditions jumped to 59.9, the highest since December 2007, from 44.3 in August. The Bundesbank said on Aug. 19 that the pace of German growth will “normalize” in the second half after gross domestic product rose 2.2 percent in the second quarter, the fastest expansion since records for a reunified Germany began two decades ago. On the strength of the second-quarter GDP data, the European Commission in Brussels yesterday raised its 2010 growth forecast for Germany to 3.4 percent from 1.2 percent. That’s double the 1.7 percent pace it projected for the 16-nation euro region as a whole.

The ZEW report “reflects the idea that growth in Germany is expected to fall back significantly during the next six months, following the exceptionally strong growth seen in the first half of the year,” said Aline Schuiling, an economist at ABN Amro Bank NV in Amsterdam. “Although this is in line with our base scenario for the German economy, we think the current drop in sentiment paints an overly pessimistic picture.”

Stocks Rally

Germany’s benchmark DAX share index has rallied 6 percent this month, taking its gain for the year to more than 5 percent. Banking stocks rose in Europe and Asia yesterday as regulators gave firms more time than analysts expected to comply with stiffer capital requirements aimed at preventing future financial crises. The euro’s depreciation against the dollar may help shield Germany’s economy from a global slowdown by making exports more competitive abroad. Daimler AG, the world’s second-largest manufacturer of luxury cars, said on Sept. 3 that sales at its Mercedes-Benz unit jumped 22 percent in August. Hochtief AG, Germany’s largest builder, last month raised its order outlook.

Still, Germany’s export-led recovery is showing some signs of cooling. Exports and factory orders declined in July while the number of people out of work fell less than economists forecast in August. Growth in Europe’s services and manufacturing industries also weakened last month.

Deficit Concerns

Investors are concerned about the finances of European governments and the cost of shoring up the region’s banking system. The extra yield that investors demand to hold Irish and Portuguese debt over German bunds last week rose to euro-era highs. The International Monetary Fund said on Sept. 10 that markets remain “acutely sensitive” to the build-up of government debt. “We’ll see something of a sideways or downward tendency in investor confidence over the coming months,” said Karsten Junius, a senior economist at Dekabank in Frankfurt. “The economic dynamic will considerably weaken in the second half.”

To contact the reporter on this story: Christian Vits in Frankfurt at cvits@bloomberg.net