German Investor Confidence Unexpectedly Increased

By Simone Meier

Nov. 11 (Bloomberg) -- German investor confidence unexpectedly rose in November as governments and central banks stepped up efforts to fight the turmoil on financial markets.

The ZEW Center for European Economic Research in Mannheim said today that its index of investor and analyst expectations increased to minus 53.5 from minus 63 in October. The index reached minus 63.9 in July, the lowest on record. Economists expected an unchanged reading, the median of 41 forecasts in a Bloomberg News survey shows.

Germany's benchmark DAX share index rebounded from a three- year low last month as the yearlong credit crisis shows signs of abating. Interbank lending rates in Europe have fallen to the lowest since February after central banks injected cash into the financial system. Chancellor Angela Merkel's Cabinet agreed on a stimulus package worth 50 billion euros ($64 billion) on Nov. 4.

``Investor confidence should have reached a turning point,'' said Ralph Solveen, an economist at Commerzbank AG in Frankfurt. ``That doesn't change the subdued outlook for the German economy over the coming months. It should shrink in the fourth quarter of this year as well as into 2009.''

Investor sentiment remained negative for a 16th month in November, suggesting pessimists outnumber optimists in the survey. The indicator's long-term average is 27.1, according to the ZEW. A gauge measuring investors' assessment of the current situation fell to minus 50.4 from minus 35.9 in October.

Recession

The European Commission said last week that the euro region entered a recession in the third quarter. The International Monetary Fund in Washington has called on central banks to lower borrowing costs further to ``support financial markets'' and ``help limit the decline in world growth.''

Central banks around the world have already taken steps to limit the economic damage of the financial turmoil, reducing interest rates and providing liquidity to banks. The euro interbank offered rate, or Euribor, for three-month loans declined more than 6 basis points to 4.34 percent today, the lowest level since Feb. 14, according to the European Banking Federation.

The European Central Bank last week cut its key rate by 50 basis points for the second time in a month, taking it to 3.25 percent, and President Jean-Claude Trichet said a further reduction is possible.

Cutting Forecasts

``It's more than probable'' that the ECB ``will have to modify substantially its projections in December for growth and inflation,'' council member Guy Quaden told Bloomberg News late yesterday in Sao Paulo. ``It's surely not excluded that the revision of the projections will have consequences on the field of our monetary policy.''

Germany's economy may have failed to grow in the third quarter and will weaken further, the Finance Ministry said last month. The government's two-year program to shore up the economy ranges from tax breaks for buyers of new cars to greater financial help for improving buildings' energy efficiency.

``If my optimistic scenario holds, the ZEW indicator has now entered an upward trend and should increase continuously in the coming months,'' said Edgar Walk, an economist at Bankhaus Metzler in Frankfurt.

`Very Weak'

``The ECB will cut its key rate by at least another 50 basis points next month,'' said Juergen Michels, an economist at Citigroup Inc. in London. ``It depends on incoming economic data, which will be very weak, giving them room to lower the benchmark to an even larger extent.''

The DAX has shed about 38 percent of its value this year as the global slowdown prompted companies to reduce profit forecasts.

German business confidence dropped to the lowest in more than five years in October and manufacturing contracted for a third month. European investor confidence fell to a record in November.

Still, crude oil prices have retreated 59 percent from a July record to around $60 a barrel, reducing the pressure on companies' margins, and the euro has depreciated 13 percent against the dollar this year, making exports more competitive.

Sales abroad rose more than economists expected in September and unemployment declined below 3 million for the first time in 16 years in October.

Bayerische Motoren Werke AG, the world's largest maker of luxury cars, said on Nov. 4 it expects ``clearly positive'' earnings this year and is sticking to its targets through 2012. The Munich-based company ``will overcome the current difficult situation,'' Chief Executive Norbert Reithofer said.

``We have seen a slight easing of tensions in money markets, we had coordinated central bank action and the government rescue package also helped,'' said Sandra Schmidt, an economist at ZEW, in an interview with Bloomberg Television. ``Central banks have more room to lower interest rates. That's an important factor'' influencing investor sentiment.

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