Investor confidence Germany likely to climb as slump terminated

Investor confidence Germany likely to climb as slump terminated

08-18-2009 11:00

Confidence among German investors most likely increased to a three-year record high in August as Germany’s economy left the slump behind in the second quarter, according to an investigation of economists. It remains insecure if the German recovery will be sustainable when the stimulus programs expire.

Investor confidence

The Centre for European Economic Research (ZEW) will announce that its gauge of investor and analyst prospects climbed from 39.5 to 45 in July, demonstrated by the median of 35 estimations in an investigation, which would be the strongest level since May 2006. The ZEW figures, which target on forecasting developments for the next six months, will be published at 11.00 a.m. this Tuesday.

Slump terminated

The German economy rose 0.3% in the second quarter in comparison with the first three months, emerging from the deepest slump since the Second World War, earlier than specialists had expected, according to last week’s report. The ZEW, headquartered in Mannheim, ended its investigation last Monday. The pace of the improvement could increase, as stimulus measures are boosting domestic spending and exports are increasing. The DAX, Germany’s stock index, has strengthened 41% since March 6.

Too negative

Commerzbank AG Ralph Solveen stated: “Improved numbers from Germany’s economy and better sentiment on stock markets will lead to an improved ZEW gauge. It’s likely that the third and fourth quarter of this year will progress.” It is expected that the ZEW indicator of the present economic state most likely climbed from -89.3 to -85, according to the investigation of economists. The treasury ministry has commented that its estimation for a 6% shrink in the economy could be too negative.

German car sales up

The German administration is investing approximately € 85 billion ($120 billion) in order to revive economic expansion, including tax cuts and a scrappage program. German car sales climbed 22.8% during the first five months of 2009 in comparison with last year, according to the German Federal Statistical Office.

German exports rise

Volkswagen Group, currently the worlds third largest automobile maker, estimated this month that sales will fall 5% this year, which is half of the previous forecast. The worldwide economy recovers and the external demand for German products is improving, while the Japanese economy saw renewed growth in the second quarter. Exports in Germany rose 7% in June with regard to May, which is the biggest jump in almost three years. The improvement could stagnate if the incentive measures run out, as joblessness grows. The German scrappage program (Abwrackprämie) will expire at the end of 2009.

Less pessimistic

Deutsche Postbank analyst Heinrich Bayer commented: “The economic improvement may not be durable. Global trade and scrappage programs result in positive outcomes, but are they sustainable?” The ZEW gauge declined in July surprisingly and the German stock index has fallen approximately 4% during the previous week. Escada AG, an intercontinental luxury fashion group in women's designer clothing, went bankrupt in the previous week, hitting 2.200 employees. Arcandor AG, a German retail and tourism group, filed for insolvency in June, affecting 43.000 workers. Jean-Claude Trichet, president of the European Central Bank, stated on August 6 when the ECB remained its base interest rate at a historical low level of 1%: “Growing unemployment will affect the development of economic expansion. However, there remain several evidently less pessimistic economic indications.”