German December Investor Confidence May Drop to Near Record Low

By Simone Meier

Dec. 9 (Bloomberg) -- German investor confidence probably dropped to near the lowest level on record in December as the financial crisis pushed Europe’s largest economy deeper into recession, a survey of economists shows.

The ZEW Center for European Economic Research will say its index of investor and analyst expectations fell to minus 57 from minus 53.5 in November, according to the median of 38 forecasts in a Bloomberg News survey. The index reached minus 63.9 in July, the lowest since it was first compiled in December 1991. ZEW releases the report, which aims to predict economic developments six months ahead, at 11 a.m. in Mannheim.

The German economy may be on the brink of its worst annual contraction in 16 years as the global credit crisis erodes exports and curbs consumer spending. The country’s benchmark DAX share index has shed 42 percent of its value this year. The European Central Bank last week cut borrowing costs the most in its 10-year history to stem a deepening economic slowdown.

“It can’t get much worse than this,” said Sylvain Broyer, an economist at Natixis in Frankfurt. “We have very negative economic indicators. Equity markets won’t recover anytime soon.”

Germany’s economy is likely to shrink for a third straight quarter in the three months through December and will contract 0.8 percent next year, its worst performance since 1993, the Bundesbank said last week.

‘Difficult Year’

The DAX last month fell to a three-year low as the global slowdown prompted companies to cut output and jobs.

BASF SE, the world’s largest chemicals company, on Nov. 19 lowered full-year profit targets for a second time. MAN AG, Europe’s third-largest truck maker, said on Dec. 3 it is bracing for a “very difficult” 2009.

German business confidence slumped to the lowest level in almost 16 years in November and factory orders plunged 6.1 percent in October from September.

Governments around the world are boosting spending and central banks are cutting borrowing costs to contain the economic fallout from the financial crisis. The ECB on Dec. 4 lowered its key rate by 75 basis points to 2.5 percent and investors are betting on another reduction in January.

Still, ECB council member Ewald Nowotny said in an interview on Dec. 5 that the Frankfurt-based central bank is in a wait-and-see mode, signaling it won’t necessarily cut rates further next month.

“The situation is open,” Nowotny, who is also head of Austria’s central bank, said. “We’ll observe how things are working, what’s happening, and then we’ll see.”

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