Bloomberg News

German Investor Sentiment Fell to Three-Year Low in November

November 17, 2011

(Updates with current conditions gauge in sixth paragraph.)

Nov. 15 (Bloomberg) -- German investor confidence fell to a three-year low in November on concern the sovereign debt crisis will push Europe’s largest economy into recession.

The ZEW Center for European Economic Research in Mannheim, Germany, said its index of investor and analyst expectations, which aims to predict developments six months in advance, declined to minus 55.2 from minus 48.3 in October. That’s the lowest since October 2008. Economists forecast a drop to minus 52.5, according to the median of 36 estimates in a Bloomberg News survey.

European stocks dropped this week as the appointment of new prime ministers in Italy and Greece failed to quell doubts that the region’s leaders will be able to resolve the debt crisis. The two-year-old turmoil is undermining confidence and corporate spending, with German factory orders plunging in September and manufacturing output shrinking last month. Business confidence dropped to a 16-month low in October.

“The crisis is far from over, despite the political changes,” said Christian Schulz, an economist at Joh. Berenberg Gossler & Co. in London. “The best that can be said for Germany is that any recession will be short and mild. The German economy is solid; it’s purely a confidence crisis.”

Faster Growth

German growth accelerated to 0.5 percent in the third quarter from 0.3 percent in the second, driven by consumer spending, the Federal Statistics Office in Wiesbaden said today.

ZEW’s gauge of current conditions eased to 34.2 from 38.4. The euro was little changed after the report at $1.3560.

While there’s no indication that companies and households are suffering from a shortage of credit, spillover effects from the debt turmoil and the worsening economic outlook in Europe are likely to “damp earnings prospects” for German banks, Bundesbank Vice President Sabine Lautenschlaeger said last week.

Hochtief AG, Germany’s largest builder, said yesterday the sale of its airport-operating business is being delayed by the “macroeconomic situation” and failure to complete a deal this year may result in a net loss. Allianz SE, Europe’s biggest insurer based in Munich, posted an 84 percent drop in third- quarter profit on Nov. 11, partly on writedowns of Greek government debt.

The European Commission on Nov. 10 cut its euro-region growth forecast for next year to 0.5 percent from 1.8 percent and said the risk of an economic contraction was “not negligible.” In Germany, growth may weaken to 0.8 percent next year from 2.9 percent in 2011, the Brussels-based commission said.

Budget Cuts

“The sovereign debt crisis has heavily impacted global financial markets and is showing the first tangible signs of affecting the real economy,” Kion Group GmbH, the world’s second-largest maker of forklifts, said yesterday.

Italian lawmakers passed budget cuts to reduce the region’s second-largest debt burden last weekend. Tensions over the austerity bill toppled Prime Minister Silvio Berlusconi’s government and will see in an administration to be led by former European Union Competition Commissioner Mario Monti.

In Greece, former ECB Vice President Lucas Papademos is leading a new government, trying to prevent the country from sliding into a disorderly default.

Germany’s benchmark DAX Index has shed 15 percent this year, while the Stoxx Europe 600 Index has declined 14 percent, reflecting investor concern that the region’s worsening turmoil will hurt economic growth and earnings.

European Recession

The European Central Bank unexpectedly cut its benchmark interest rate by a quarter point to 1.25 percent this month to bolster confidence and growth. President Mario Draghi has said there’s a risk of a “mild recession.”

Steven Barrow, head of Group of 10 currency strategy at Standard Bank Plc in London, said the ECB may continue to trim borrowing costs, bringing the benchmark to 1 percent next month.

“The ECB is likely to lead the way as the euro zone is clearly the epicenter of the economic weakness,” he said in an e-mailed note ahead of today’s report. “A recession seems virtually assured -- the only question right now is whether it will be deep or shallow. We believe that it’s more likely to be the former.”

--With assistance from Richard Weiss in Frankfurt and Jeff Black and Allison Connolly in Mannheim. Editors: Simone Meier, Fergal O’Brien, Matthew Brockett

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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