German investor confidence gained for a second month in October as the European Central Bank’s plan to buy government bonds fueled speculation that the sovereign debt crisis can be contained.
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, climbed to minus 11.5 from minus 18.2 in September. Economists forecast an increase to minus 14.9, according to the median of 36 estimates in a Bloomberg News survey.
Germany’s benchmark DAX share index has rallied more than 10 percent since ECB President Mario Draghi pledged on July 26 to do whatever it takes to preserve the euro and unveiled an unlimited bond-purchase program. While the German economy, Europe’s largest, is also outperforming its euro-area counterparts, there are signs that the crisis is damping growth. Factory orders fell more than forecast in August and business confidence dropped to a 2 1/2 year low in September.
“The improvement was primarily driven by investor relief at the ECB’s unlimited bond-purchase program,” said Carsten Brzeski, senior European economist at ING Group in Brussels. “However, it also points to a soft landing for the German economy. The outlook is more subdued, but we won’t have a recession.”
The euro rose after the report before retreating to trade little changed at $1.30 at noon in Frankfurt. European stocks advanced, with the Stoxx Europe 600 Index (SXXP) climbing 0.4 percent to 271.92.
ZEW’s gauge of the current economic situation fell to 10 from 12.6 in September.
The government will cut its forecast for growth next year to 1 percent from 1.6 percent and raise its 2012 estimate to 0.8 percent from 0.7 percent, Bild newspaper reported today, citing officials. The new forecasts are due tomorrow.
German growth slowed to 0.3 percent in the second quarter from 0.5 percent in the first as budget cuts and recessions in at least five euro-area trading partners eroded demand for exports.
The 17-member euro-area economy, which shrank in the second quarter, will continue to contract in the third and fourth quarters and stagnate in the first three months of next year, the Ifo, Insee and Istat institutes forecast on Oct. 5.
The ECB said last month that euro-area gross domestic product will drop 0.4 percent this year. Inflation held steady at 2.6 percent in September, the European Union’s statistics office said today.
In the U.K., Germany’s fourth-largest export destination, inflation slowed to 2.2 percent last month, the lowest rate in almost three years, a separate report showed.
Germany’s Infineon Technologies AG (IFX), Europe’s second-biggest semiconductor maker, on Sept. 25 predicted sales and profitability will decline in the three months through December as clients cut spending amid the economic slowdown.
Some German companies are compensating through sales to faster growing markets.
Volkswagen AG (VOW), Europe’s largest carmaker, said yesterday it is expanding its lineup to offset weak demand in Europe as it pursues its goal of becoming the world’s largest automaker by 2018. Growth in China and the U.S. helped the company increase deliveries 9.7 percent to 6.71 million vehicles in the first nine months of 2012.
Even so, global growth is slowing. Federal Reserve data later today will show U.S. industrial production grew 0.2 percent last month, failing to recoup the ground lost the previous month when output fell 1.2 percent, according to a survey of economists.
Australia’s central bank saw scope to cut borrowing costs as the cooling global economy threatened to weaken Asia’s growth and damp the nation’s mining boom, according to the minutes of an Oct. 2 meeting published today.
“We expect German exports to decline in the months to come and the economy to contract in the third quarter,” said Katrin Loehken, an economist at Sal. Oppenheim Group in Cologne. “The ECB has calmed the markets for now, but for a lasting improvement Spain will have to apply for aid at some point.”
Draghi said on Oct. 4 he stands ready to intervene if governments request a bailout from Europe’s rescue fund and agree to conditions. Spain, the country most likely to take up the offer, is still mulling whether it wants to apply and accept the conditions attached.
“By saying it will buy unlimited government bonds, the ECB gave investors a certain degree of security,” said Holger Schmieding, chief economist at Berenberg Bank in London. “As long as we can rely on this, I am convinced the situation in the euro area will further improve.”
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