German November Investor Sentiment May Stay Near Record Low

By Simone Meier

Nov. 11 (Bloomberg) -- German investor confidence probably stayed near a record low in November after the financial crisis pushed Europe's largest economy to the brink of a recession, a survey of economists shows.

The ZEW Center for European Economic Research will say its index of investor and analyst expectations held at minus 63, unchanged from October, according to the median of 41 forecasts in a Bloomberg News survey. The index reached minus 63.9 in July, the lowest on record. ZEW releases the report, which aims to predict economic developments six months ahead, at 11 a.m. in Mannheim.

German economic growth is faltering after the year-long credit crunch pushed up borrowing costs and slowed global expansion. The International Monetary Fund on Nov. 6 predicted the economy of the 15 nations sharing the euro will shrink 0.5 percent in 2009. Germany's benchmark DAX share index has dropped 37 percent this year.

``We haven't seen the full impact of the credit crisis yet,'' said Thorsten Polleit, chief German economist at Barclays Capital in Frankfurt. ``Confidence will continue to decline as uncertainty increases and investors become more risk averse. The German economy will shrink well into next year.''

Central banks around the world have already taken steps to limit the economic damage of the financial turmoil. 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.

Recession Forecast

The European Commission said on Nov. 3 that the euro-area economy probably entered a recession in the third quarter and will barely grow next year. The German economy probably failed to grow in the third quarter and will weaken further, the Finance Ministry said last month.

The DAX last month fell to a three-year low as the deepening global slowdown prompted companies to reduce earnings forecasts. Henkel AG & Co. KGAA, the maker of Persil detergent, said on Nov. 6 that it expects full-year profit to drop because of higher costs. ThyssenKrupp AG and Salzgitter AG, Germany's largest steelmakers, will both cut production.

German business confidence dropped to the lowest in more than five years in October and manufacturing contracted for a third straight month.

The IMF in Washington called on central banks to lower borrowing costs further to ``help limit the decline in world growth.''

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