German Investor Sentiment Probably Slumped in October

By Christian Vits

Oct. 14 (Bloomberg) -- German investor confidence probably slumped in October as the deepening financial crisis threatened to tip Europe into a recession, a survey of economists shows.

The ZEW Center for European Economic Research will say its index of investor and analyst expectations dropped to minus 51.1 from minus 41.1 in September, according to the median of 35 forecasts in a Bloomberg News survey. ZEW releases the report, which aims to predict economic developments six months ahead, at 11 a.m. in Mannheim.

Germany's benchmark DAX share index dropped 22 percent last week, the most on record, as concern grew that the credit crunch will drag the global economy into recession. Policy makers from the Group of Seven nations pledged at the weekend to take ``all necessary steps'' to stem a market panic and European governments yesterday announced plans to avert a banking collapse across the region.

The ZEW index ``will look lousy,'' said Klaus Baader, chief European economist at Merrill Lynch & Co. in London. ``Fear is increasing that the extreme turbulence will hurt the real economy. I'm particularly concerned about cooling foreign demand.''

In France, manufacturing confidence slumped in September to the lowest in 15 years, the Paris-based Bank of France said today. Manufacturing activity will ``continue to decline in the short term,'' the central bank said.

Slower Growth


Stocks rallied around the world yesterday, with the DAX gaining the most on record, after governments in Europe, the U.S. and Asia agreed to support banks.

Germany will provide as much as 500 billion euros ($681 billion) in loan guarantees and capital to bolster its banking system, the country's biggest government intervention since the Berlin Wall came down in 1989.

Still, the German government will have to lower its forecast for economic growth next year to ``below 0.5 percent'' from its current target of 1.2 percent, said Volker Kauder, parliamentary chief of Chancellor Angela Merkel's Christian Democrats.

Gross domestic product growth will probably slow to 0.2 percent in 2009 from 1.8 percent this year, Frankfurter Allgemeine Zeitung reported, citing a joint forecast by Germany's leading economic research institutes to be presented in Berlin today.

Oil, Euro

The economy contracted in the second quarter and may not have recovered in the third as exports faltered and consumer spending waned. Business confidence dropped to the lowest level in more than three years in September.

Deutz AG, a German maker of diesel engines for trucks and ships, yesterday cut its full-year sales forecast for a second time this year, saying the financial crisis has hurt demand in the U.S. and Europe and that growth in China is slowing.

Europe's economy may be cushioned by falling oil prices, the euro's retreat and lower interest rates.

Oil prices have almost halved since reaching a record $147.27 a barrel in July, boosting consumers' purchasing power, while the euro has dropped more than 14 percent over the same period, making European exports more competitive.

The European Central Bank and the U.S. Federal Reserve last week led a global round of rate cuts, lowering their benchmarks by half a point to 3.75 percent and 1.5 percent respectively. Investors expect the ECB's key rate to be at 3.25 percent by December, according to Eonia forward contracts.

To contact the reporter on this story: Christian Vits in Frankfurt at cvits@bloomberg.net