German Investor Confidence May Rise to Three-Year High in July

By Christian Vits

July 14 (Bloomberg) -- German investor confidence probably rose to a three-year high this month on signs the contraction in Europe’s largest economy is coming to an end, a survey of economists shows.

The ZEW Center for European Economic Research will say its index of investor and analyst expectations rose to 47.8 from 44.8 in June, according to the median of 36 forecasts in a Bloomberg News survey. That would be the highest since May 2006. ZEW releases the report, which aims to predict economic developments six months ahead, at 11 a.m. in Mannheim today.

Industrial output jumped 3.7 percent in May from April, the biggest gain in almost 16 years, and business confidence increased for a third month in June. The benchmark DAX share index has advanced 28 percent in the past four months. Even as the economy stabilizes from its first-half freefall, the government expects gross domestic product to plunge 6 percent this year, the most since World War II.

“The economic contraction is over,” said Ralph Solveen, an economist at Commerzbank AG in Frankfurt. “However, the recovery will be anemic and slow.”

ZEW’s gauge of the current economic situation probably rose to minus 87.8 from minus 89.7 in June, the economist survey shows.

Volkswagen AG’s luxury Audi division is forecasting “light” growth in auto sales next year following this year’s contraction, Peter Schwarzenbauer, the brand’s sales chief, said on July 8.

Stimulus Measures

HeidelbergCement AG, Germany’s biggest cement maker, said the same day it’s seeing initial signs of improvement in some markets, particularly Asia, as local stimulus packages start kicking in.

Chancellor Angela Merkel’s government has pledged to spend about 85 billion euros ($117 billion) in an effort to rekindle growth in Germany, including tax breaks and a 2,500-euro payment for consumers who scrap their old car and buy a new one.

The European Central Bank has cut its key interest rate to a record low of 1 percent, offered to lend banks as much cash as they want and started purchasing 60 billion euros of covered bonds to help revive lending.

“The prevailing mood has changed, thanks to the latest positive data but also due to the government stimulus package and lower interest rates,” said Matthias Huth, an economist at Landesbank Baden-Wurttemberg in Stuttgart. “Still, there’s a risk that the green shoots are exaggerated.”

The euro-area economy will probably shrink 4.8 percent this year and 0.3 percent in 2010, the International Monetary Fund said last week.

“The good news is that the forces pulling the economy down are decreasing in intensity,” IMF Chief Economist Olivier Blanchard told a July 8 press briefing. “The bad news is that the forces pulling the economy up are still weak.”

To contact the reporter on this story: Christian Vits in Frankfurt cvits@bloomberg.net