Bloomberg News

ZEW Investor Confidence Declines to Lowest Since January

July 17, 2012

German Investor Confidence Falls to Six-Month Low

A euro sign sculpture, right, is seen illuminated at night against the business district skyline in Frankfurt. Photographer: Hannelore Foerster/Bloomberg

German investor confidence declined for a third month in July as the euro area’s debt crisis and cooling global demand dimmed the economic outlook.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, fell to minus 19.6 in July from minus 16.9 in the previous month. In the U.K., inflation dropped to the lowest in 2 1/2 years.

Germany’s economy, which grew 0.5 percent in the first quarter, is running out of steam as austerity measures across Europe and weakening global growth curb demand for its goods and damp confidence. The International Monetary Fund yesterday cut its global growth forecast for 2013 to 3.9 percent from a 4.1 percent estimate in April.

“Germany’s export prospects to Europe are in the doldrums and the U.S. and China cooling doesn’t bode well either,” said Carsten Brzeski, an economist at ING Group in Brussels. “A stronger domestic economy can’t offset that, so we are looking at a long period of stagnation, albeit at a high level.”

Economists forecast a drop to minus 20, according to the median of 38 estimates in a Bloomberg News survey. ZEW’s gauge of sentiment in the 17-nation euro region fell to minus 22.3 from minus 20.1. A measure of current conditions in Germany slumped to 21.1 from 33.2.

Rising Wages

The euro pared its gain versus the dollar after the report before rebounding. It was 0.2 percent stronger at $1.2299 as of 10:35 a.m. London time. Bonds were little changed.

Germany’s benchmark DAX Index has lost almost 8 percent in the past four months. Germany’s Bundesbank said June 18 that it remained to be seen to what extent the financial turmoil “and signs of a global slowdown further damp prospects for the German economy.”

Still, on June 8 it revised up its 2012 growth forecast for Germany to 1 percent from 0.6 percent. The IMF, which has co- financed bailouts for countries including Ireland and Greece, lowered its growth forecast for the euro region next year to 0.7 percent, from 0.9 percent in April, and left a forecast for a 0.3 percent contraction this year unchanged.

Rising wages and unemployment at a two-decade low are bolstering domestic spending, helping to insulate Germany from the debt crisis. Up to now German companies were compensating for weaker European demand by tapping faster-growing markets such as China.

Additional Stimulus

Even so, the world’s second-largest economy is battling its own weakness, with gross domestic product up 7.6 percent in the second quarter from a year earlier, a sixth straight slowdown. The U.S. economy is also struggling with weaker growth, prompting the Federal Reserve to signal growing support for additional monetary stimulus if needed.

Fed Chairman Ben S. Bernanke will deliver his semi-annual report on the economy and monetary policy before Congress today, after data yesterday showing a contraction in June retail sales.

In Asia, South Korean Finance Minister Bahk Jae Wan ruled out additional fiscal stimulus for now, saying it could do more harm than good because the global economy is too weak to make it meaningful.

“You don’t plant a tree in winter,” Bahk said yesterday in an interview with Bloomberg News in Seoul. Elsewhere in Asia, Singapore’s export growth unexpectedly quickened in June and New Zealand’s consumer prices rose at the slowest rate since 1999 last quarter.

U.K. Inflation

Central bankers from London to Seoul have lowered borrowing costs or increased bond buying in recent weeks in a round of international stimulus echoing the response to the 2007-2008 global financial crisis. The European Central Bank cut its benchmark rate to a record low of 0.75 percent on July 5 and lowered its deposit rate to zero.

The drop in the June U.K. inflation rate to 2.4 percent from 2.8 percent after clothing prices plunged, helped to vindicate the central bank’s increase in emergency stimulus this month.

From May, consumer prices fell 0.4 percent, the biggest June decline since records began in 1996.

The Bank of England added 50 billion pounds to its asset- purchase program this month as falling inflation gave policy makers scope to spur an economy struggling to emerge from its second recession since 2009. The inflation figures offer some respite for consumers who have seen their wages eroded by soaring energy prices.

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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