German December Investor Sentiment Unexpectedly Rises

By Simone Meier

Dec. 9 (Bloomberg) -- German investor confidence unexpectedly rose for a second month in December after the European Central Bank cut interest rates by an unprecedented amount and the government announced measures to bolster Europe’s largest economy.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations increased to minus 45.2 from minus 53.5 in November. Economists expected a drop to minus 57, 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.

The ZEW report bucks the trend of recent data showing Germany’s economy is contracting after the global credit crisis eroded exports and wiped 42 percent from the DAX share index this year. German lawmakers on Dec. 5 passed the government’s 32 billion-euro ($41 billion) stimulus plan, a day after the ECB cut its key rate by 75 basis points to 2.5 percent.

The measures, combined with falling oil prices and a weaker euro, “seem to have offset increased fears of a global recession,” said Carsten Brzeski, an economist at ING Group in Brussels. Still, “the German economy is in the middle of a severe recession with no quick end in sight.”

Oil Drop

ZEW said its gauge of the current situation slumped to minus 64.5 from minus 50.4 in November. While the DAX dropped to a three-year low last month, it’s gained 2.7 percent since ZEW started its survey on Nov. 24.

“The level is still very low,” Sandra Schmidt, an economist at ZEW, said in an interview with Bloomberg Television. “The improvement in sentiment merely shows that investors don’t expect things to get any worse.”

Crude oil prices have declined 54 percent this year, easing companies’ cost pressure, and the euro has shed 12 percent against the dollar over the same period, making exports more affordable abroad.

Audi AG, Volkswagen AG’s luxury-car brand, yesterday reported a gain in November deliveries. Vossloh AG, Germany’s largest supplier of concrete railroad ties, said on Dec. 4 it’s targeting growth in sales and operating profit in the next two years and expects to meets its goals for 2008.

“The good news is that ZEW, which is an indicator from one of the five major institutes in Germany, has a positive change against all expectations,” ECB Executive Board member Lorenzo Bini Smaghi told reporters at an event in Beijing today. “It’s a volatile indicator, but it’s in a positive direction.”

‘Sober Up’

Rising investor confidence still “doesn’t make sense,” said Christoph Rieger, an economist at Dresdner Kleinwort in Frankfurt. “A deep, long recession is just starting. They should sober up.”

The Bundesbank said last week that 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. That would be the worst performance since 1993.

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. German exports declined 0.5 percent in October from the previous month.

“The current crisis is breaking every record in a negative sense,” said Jens Kramer, an economist at NordLB in Hannover, Germany. “A lot will depend on to what extent the government measures will show an impact” on the economy.

‘Tough Times’

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

“Customers in the automotive industry have canceled orders at short notice,” Chief Executive Officer Juergen Hambrecht said that day. “BASF is preparing for tough times.”

The economy of the 15 euro nations may shrink around 0.5 percent in 2009, the ECB said last week. ECB President Jean- Claude Trichet said yesterday the economy may start to gradually recover in the second half of next year.

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 as investors expect.

“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.