German Investor Confidence Probably Increased on Oil, Euro

By Gabi Thesing

Sept. 16 (Bloomberg) -- German investor confidence probably rose for a second month after a decline in oil prices and a weaker euro improved the prospects of Europe's largest economy, a survey of economists shows.

The ZEW Center for European Economic Research will say its index of investor and analyst expectations rose to minus 53 from minus 55.5 in August, the median of 43 forecasts in a Bloomberg News survey shows. ZEW releases the report, which aims to predict economic developments six months ahead, at 11 a.m. in Mannheim.

``If the economy is down in the dumps then of course any glimmer of hope like an improvement in the oil price will boost optimism,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. ``The renewed financial market turmoil may eventually push up borrowing costs a bit, but I think the fallout in Europe will be contained.''

The price of oil has dropped more than a third from a July record and the euro has lost 10 percent against the dollar in the past three months, providing relief to consumers and exporters. Still, stocks and bond yields plunged yesterday after Lehman Brothers Holdings Inc became the latest victim of a yearlong credit squeeze.

Financial institutions worldwide have reported more than $500 billion in losses and writedowns and the credit-market turmoil has erased $11 trillion from global stocks in the past year. Germany's benchmark DAX index has lost 26 percent so far this year.

Lehman Bankruptcy

New York-based Lehman, founded 158 years ago, said yesterday it plans to file for Chapter 11 bankruptcy protection after failing to find a buyer. Merrill Lynch, also based in New York, agreed to sell itself to Bank of America Corp. for $50 billion in an emergency deal worked out over the weekend.

ZEW said yesterday that even though financial analysts could file their responses until today, the majority of those surveyed has already submitted their evaluation before Sept. 13.

The cost of borrowing euros for three months has remained close to the highest level since December 2000. The euro interbank offered rate, or Euribor, was little changed at 4.97 percent, European Banking Federation data showed yesterday. The one-week rate held at 4.4 percent. Germany's Ifo institute said yesterday that companies reported tighter lending standards ``in all sectors.''

The German economy shrank for the first time in almost four years in the three months through June and may not recover until the end of the year, ZEW President Wolfgang Franz said Sept. 11. Until then, a recession ``cannot be ruled out,'' he said.

Lower Growth Forecast

The Kiel-based IfW institute last week slashed its forecast for 2009 to just 0.2 percent, from a previous prediction of 1 percent, when the institute said the economy would weather the worst ravages of the U.S. subprime mortgage crisis.

Germany is now ``feeling the impact of the crisis as it develops globally,'' cooling demand for German goods, the institute said. The economy expanded 2.5 percent in 2007, and 3 percent in 2006.

Bundesbank President Axel Weber, who also sits on the European Central Bank's Governing Council, said Sept. 10 that Germany's economic ``resilience'' will prevent it from sliding into a ``deep recession.''

``Germany's foreign trade will by no means collapse next year, but it will make a smaller contribution to the economy's dynamism than usual,'' Anton Boerner, head of the BGA association of exporters and wholesalers, said the same day.

Investors have raised bets that the gloomy growth outlook and declining oil prices may force the ECB to lower borrowing costs. The yield on the March Eonia forward contracts contract was at 4 percent yesterday, down from 4.26 percent a month ago.

The ECB raised its benchmark rate by a quarter point to 4.25 percent in July after inflation accelerated to 4 percent, the fastest pace in 16 years and double the bank's 2 percent limit.

To contact the reporter on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net