German Investor Confidence Rises More Than Forecast

By Simone Meier

Aug. 19 (Bloomberg) -- German investor confidence increased more in August than economists forecast after the euro declined and oil prices retreated from a record.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations rose to minus 55.5 from minus 63.9 in July, the lowest since the survey began in 1991. Economists expected a gain to minus 62, the median of 43 forecasts in a Bloomberg News survey shows.

A 24 percent drop in oil prices from a July 11 record of $147.27 a barrel leaves companies with more money to spend just as a weaker euro underpins exports. Germany's BGA trade association today maintained its 2008 forecast for economic growth. Still, the DAX benchmark share index has shed 20 percent this year.

The report is ``providing a glimmer of hope that there is light at the end of the tunnel,'' Martin van Vliet, an economist at ING Group in Amsterdam, said in an e-mailed note today. ``We would caution against becoming overexcited about this. Investor confidence is still at recessionary levels.''

The German economy may expand 1.7 percent this year before cooling to less than 1 percent in 2009, the BGA said today. BGA President Anton Boerner said the economy is in a ``corrective phase'' after a ``strong start.''

`Positive Factors'

``We had two positive factors: the drop in oil prices and the depreciation of the euro,'' Sandra Schmidt, an economist at ZEW, said in an interview with Bloomberg Television. It ``should also have a positive influence on the indicator in the future.''

ThyssenKrupp AG and Salzgitter AG, Germany's largest steelmakers, on Aug. 14 both increased their full-year earnings forecasts on rising demand from builders and automakers. Salzgitter Chief Executive Officer Wolfgang Leese said that day that markets are ``stable.''

Still, gross domestic product may rise just 0.1 percent in the three months through September, the Berlin-based DIW economic institute predicted yesterday. In the second quarter, the economy shrank 0.5 percent from the first three months.

In the economy of the 15 euro nations, the slowdown is already deepening. Consumer and executive confidence in the outlook fell by the most since the Sept. 11 terrorist attacks. European manufacturing and service industries probably shrank for a third month in August, a Bloomberg survey shows.

Faster Inflation

Tognum AG, the German diesel-engine maker that former owner Daimler AG is reinvesting in, scaled back 2008 sales and margin forecasts on Aug. 12 after a declining dollar and slowing economic growth led to a drop in second-quarter orders.

Some companies are passing on higher costs to bolster earnings. German producer-price inflation accelerated to the fastest pace since October 1981 last month, the Federal Statistics Office in Wiesbaden said today.

While the euro's 8 percent drop against the dollar over the past month has made exports more affordable abroad, the U.S. economy, the world's largest, is grappling with a worsening housing slump, curbing economic growth.

The single currency rose to as high as $1.4690 after the release from $1.4665. It has since retreated to $1.4668 at 12:07 p.m. in Frankfurt.

Looking East

Some companies are looking to expand in faster-growing economies to boost sales. Hochtief AG, Germany's largest builder, on Aug. 14 raised its full-year earnings forecasts on rising demand in markets such as Australia and Asia.

``The biggest weakness is North America,'' Juergen Hambrecht, chief executive officer of BASF SE, the world's largest chemical producer, said last month. ``Asia and South America expand at a robust pace. In these regions, we'll continue to have very, very robust growth, also in the future.''

The euro dropped almost 8 cents after European Central Bank President Jean-Claude Trichet on Aug. 7 said growth will be ``particularly weak'' through the third quarter. The Frankfurt- based central bank that day kept its key rate at 4.25 percent.

The worsening European growth outlook may stop the central bank from raising rates further. Eonia forward contracts show investors have scaled back bets on higher interest rates, with the rate on the December contract at 4.24 percent today, down from 4.43 percent a month ago.

``The economic dynamic has considerably weakened and moved into a flattening phase, which will also influence next year,'' said Stephan Rieke, an economist at BHF-Bank AG in Frankfurt. Weaker growth also ``opens the window for inflation to slow, paving the way for the ECB to cut interest rates.''

To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net