German Investor Sentiment Probably Rose to Two-Year High in May

By Gabi Thesing

May 19 (Bloomberg) -- German investor confidence probably jumped to a two-year high in May after stock markets rallied and data signaled the worst of the recession may have passed, a survey of economists shows.

The ZEW Center for European Economic Research will say its index of investor and analyst expectations rose to 20 from 13 in April, according to the median of 35 forecasts in a Bloomberg News survey. That would be the highest reading since June 2007. ZEW releases the report, which aims to predict economic developments six months ahead, at 11 a.m. in Mannheim.

European stocks have gained for the past two months on the expectation that government and central bank efforts to revive economic growth will work. While the German economy shrank at record pace in the first three months of the year, manufacturing orders and exports unexpectedly rose in March and business confidence rebounded from a 26-year low in April.

“We now have the evidence that the economy is stabilizing,” said Carsten Brzeski, an economist at ING Groep in Brussels. “It’s too early to call an end to the recession but it now looks like the second quarter could be much better than people initially expected and government measures should kick in during the second half of the year.”

German Chancellor Angela Merkel’s coalition will spend about 82 billion euros ($111 billion) to stem the country’s worst recession in over six decades. The European Central Bank has trimmed its key rate to a record low of 1 percent and announced it will purchase 60 billion euros of covered bonds.

Stocks Recover

The pan-European Dow Jones Stoxx 600 Index has rebounded 29 percent from this year’s low hit on March 9, with Germany’s benchmark DAX Index recording a similar gain.

Commerzbank AG Chief Executive Officer Martin Blessing said May 15 that Germany’s second-biggest bank will return to profitability by 2011 and doesn’t need any more state aid.

Confidence in the global economy rose to the highest level in 19 months in May, a Bloomberg survey of users on six continents showed. Federal Reserve Chairman Ben S. Bernanke said May 5 that the U.S. housing market has “shown some signs of bottoming” after a three-year slump, which triggered the global recession.

Still, Germany’s economy, Europe’s largest, contracted 3.8 percent in the first quarter from the fourth, the most since records began in 1970 and more than economists had forecast. The government expects gross domestic product to plunge 6 percent this year.

Bundesbank Warning

Bundesbank President Axel Weber tried to temper optimism about a recovery, warning against “exaggerating” recent positive signals.

“The crisis has yet to reach the people via job losses,” he said in an interview with the Financial Times Deutschland published yesterday. “Calling an end to the crisis too early is very risky. People will be disappointed and that could have an enormous impact on confidence.”

German unemployment rose for a sixth straight month in April, pushing the jobless rate to a 16-month high of 8.3 percent.

Holger Schmieding, chief European economist at Banc of America Securities-Merrill Lynch, said Germany is nevertheless ideally positioned to benefit from even a nascent global recovery.

“Germany should be over the worst,” he said. “While I’m not talking about a boom, the country will benefit from global catch-up demand in investment. It has fallen so dramatically that there will be significant upside now.”

To contact the reporter on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net.