German Investor Confidence Probably Rose to a Three-Year High

By Jana Randow

Oct. 13 (Bloomberg) -- German investor confidence probably rose to the highest in more than three years in October as Europe’s largest economy continued to recover from its worst recession since World War II, a survey of economists showed.

The ZEW Center for European Economic Research’s index of investor and analyst expectations increased to 58.8 from 57.7 in September, according to the median of 36 forecasts in a Bloomberg News survey. That would be the highest reading since April 2006. ZEW releases the report, which aims to predict developments six months ahead, at 11 a.m. in Mannheim today.

Factory orders rose for a sixth month in August and a manufacturing slump eased in September, suggesting growth is accelerating after the German economy exited the recession in the second quarter. While the strengthening economy helped pushed the benchmark DAX index up 58 percent from its March trough, the pace of the recovery may be tempered by rising unemployment and the euro’s increase against the dollar.

“The core message is the economy will recover and the very worst is behind us,” said Klaus Schruefer, an economist at SEB Banken AG in Frankfurt. “We’ve seen a very good development in the stock market and companies’ earnings will probably surpass forecasts in the third quarter. Yet, uncertainty remains.”

ZEW’s gauge of the current economic situation probably rose to minus 69 from minus 74 in September, according to the survey of economists.

Improving Trade

Improving global trade is boosting demand for German exports, while the government’s 85 billion-euro ($125 billion) stimulus package has spurred spending at home. The International Monetary Fund on Oct. 1 raised its forecast for global growth next year to 3.1 percent from 2.5 percent projected in July.

Bayerische Motoren Werke AG, the world’s largest maker of luxury cars, posted its first monthly sales increase this year in September. It has ended months of production cuts as demand picks up and it prepares for the introduction of a new model.

Homag AG, a German machinery maker for the furniture and timber-frame housing industries, may return to profit next year after cutting jobs to cope with this year’s 40 percent sales drop, Chief Executive Officer Rolf Knoll said on Sept. 28.

The gains by the DAX have been matched across Europe, where the Dow Jones Euro Stoxx 50 has gained 55 percent since early March. In the U.S., the S&P 500 has surged 59 percent.

Euro Appreciation

While the “general economic trend” is “pointing upward,” unemployment may rise, curbing consumer spending, Bundesbank President Axel Weber said on Oct. 3. The Bundesbank expects unemployment to rise to 10.5 percent in 2010 from 8.2 percent in September.

The euro-area economy is also facing rising unemployment and a “bumpy” recovery, European Central Bank President Jean- Claude Trichet said on Oct. 9.

In addition to joblessness, the euro’s appreciation against the dollar may hinder the recovery by eroding export competitiveness. Aurelio Maccario, chief euro-area economist at UniCredit Group in Milan, estimates that the euro’s 2 percent appreciation in trade-weighted terms since the start of the third quarter is enough to shave 0.2 percentage points off euro- area growth through 2010.

Ten of the 36 economists surveyed by Bloomberg forecast the ZEW index will decline.

“There’s no need to be overly pessimistic, but the potential for further improvement is shrinking,” said Klaus Baader, co-chief euro-area economist at Societe Generale in London, who predicts the index will retreat to 50.

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net