German Investor Confidence Rises to 17-Month High (Update2)

Aug. 23 (Bloomberg) -- Investor confidence in Germany, Europe's largest economy, increased to the highest in 17 months in August after the euro's decline spurred exports and German companies increased spending.

A measure of institutional and analyst expectations for economic growth rose to 50 from 37 in July, the ZEW Center for European Economic Research said today in Mannheim. Economists expected a gain to 39, the median of 40 estimates in a Bloomberg survey showed. The index's long-term average is 34.3.

``The drop in the euro has made exporters more optimistic,'' said Dominic White, an economist at ABN Amro in London. ``If companies become more confident, they'll feel they're in a better position to invest and start hiring again.''

Increased demand at home and abroad is offsetting concern about oil prices at around $60 a barrel and an 11.6 percent unemployment rate. Truckmaker MAN AG is benefiting from the euro's 10 percent decrease against the dollar this year and Degussa AG, the world's biggest maker of specialty chemicals, is stepping up investment, improving prospects for faster growth after the economy stalled in the second quarter.

Germany's domestic economy expanded for the first time in nine months in the second quarter, growing 0.3 percent from the previous three months, the Federal Statistics Office said today. Company spending on equipment and inventories led the gain.

``Despite the high oil price, the continued solid performance of the global economy and the first signs of a rival of domestic demand led to greater optimism,'' the institute said in the statement. ZEW received 322 responses to its survey.

Global Growth

E.ON AG, Germany's largest utility, in June announced plans for a new power plant in the country to replace aging generators, and Degussa is investing in a new production line.

The global economy is supporting German growth with demand for the country's goods. The U.S. economy, the world's largest, expanded at least 0.8 percent in the past nine quarters. The economy of the 30 members of the Organization for Economic Cooperation and Development will grow 2.6 percent in 2005, according OECD forecasts from May 24.

Euro-region growth will probably accelerate to about 0.4 percent in the current quarter and 0.6 percent in the fourth from 0.3 percent in the three months through June, the Commission said Aug. 11. ZEW's index for the euro region increased to an 11-month high of 41.6 in August from 29 in April.

Euro Spurs Exports

Exports, which didn't rise enough in the three months to June to offset rising imports, are getting a push from the euro's retreat this year. A euro bought $1.2229 AT 10:28 a.m. today, compared with a record $1.3666 on Dec. 30.

The currency's decline makes European goods less expensive for oversees buyers. Germany's benchmark DAX stocks index has risen 17 percent since May 1.

MAN, Europe's third-largest truckmaker, said Aug. 11 that second-quarter profit rose 33 percent, boosted by demand from foreign customers and orders for trucks in Western Europe. Sales in the Middle East also gained as oil exploration increased and companies bought vehicles to service oil wells, MAN Chief Executive Officer Hakan Samuelsson said.

Oil prices reached a record $67.10 on Aug. 12, meaning companies and consumers have to spend more on fuel. That may temper confidence, especially among executives surveyed in the Ifo institute's widely watched index of business confidence, due to be released on Aug. 25.

ECB Interest Rates

``We're still waiting for a turnaround in consumption in Germany, and the sharp rise in petrol prices is eating into disposable income,'' said Natascha Gewaltig, head of European economics at Action Economics in London. ``The oil price has had a negative impact on growth expectations.''

Economy and Labor Minister Wolfgang Clement on Aug. 11 called on the European Central Bank to cut its benchmark interest rate from a six-decade low to help offset the effects of oil prices on growth. German voters, unhappy with Chancellor Gerhard Schroeder's economic policies after the unemployment rate reached a record 12 percent in March, snubbed the government in regional elections this year. Schroeder plans to hold national elections a year early on Sept. 18.

Axel Weber, the president of the Bundesbank who also represents Germany on the central bank's council, said Aug. 11 that the inflation outlook doesn't justify changing rates. The ECB has kept its benchmark rate at 2 percent since June 2003.

Investors have pared expectations for lower ECB rates this year, futures trading shows. The rate on the December Euribor interest-rate future was at 2.15 percent today, up from 1.96 percent on June 22.

The contracts settle to the three-month euro area inter-bank offered rate for the euro, which has averaged 15 basis points more than the ECB's key rate since the currency's launch in 1999. The Euribor three-month money market rate was 2.13 percent.



To contact the reporter on this story:
Brian Swint in Frankfurt at bswint@bloomberg.net.
Last Updated: 2005-08-23 05:34 EDT

ONCE upon a time there was a prince who wanted to marry a princess; but she would have to be a real princess. He travelled all over the world to find one, but nowhere could he get what he wanted. There were princesses enough, but it was difficult to find out whether they were real ones. There was always something about them that was not as it should be. So he came home again and was sad, for he would have liked very much to have a real princess.

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Now they knew that she was a real princess because she had felt the pea right through the twenty mattresses and the twenty eider-down beds.

Nobody but a real princess could be as sensitive as that.

So the prince took her for his wife, for now he knew that he had a real princess; and the pea was put in the museum, where it may still be seen, if no one has stolen it.

There, that is a true story.