German investor confidence hits 10-month high in February

By Andrew McCathie Feb 14, 2012, 12:02 GMT

Berlin - Investor confidence in Germany posted its third consecutive monthly gain in February to reach its highest level in 10 months, a key survey showed on Tuesday, adding to signs that Europe's biggest economy has rebounded from a slump at the end of last year.

The Mannheim-based ZEW Centre for European Economic Research's index, which measures the mood among analysts and institutional investors, bounced back into positive territory in February for the first time in 10 months, jumping 27 points to 5.4 points from minus 21.6 in January.

'From the perspective of the financial market experts there is a good chance that the German economy will experience a slight uplift in the second half of 2012,' said ZEW President Wolfgang Franz.

'Since consumers do not have to fear for their jobs due to the low unemployment rate, domestic demand will continue to support economic growth. Still, the solution of the crisis in the eurozone remains an important task,' he said.

The ZEW indicator now stands at its highest level since April 2011 with the recent stream of good economic news out of the United States also helping the mood among investors.

Economists had expected a smaller gain in February, predicting the monthly index would rise to minus 11.8.

Based on a survey of 278 analysts, the index tumbled to a three-year low of minus 55.2 points in November.

The Organization for Economic Co-operation and Development (OECD) tempered the good news by saying Germany's ageing population and strict regulation of the services sector could hamper growth.

Releasing an assessment it conducts every 18 months, OECD Secretary-General Angel Gurria said Germany should relax its strict regulation of parts of the services sector and of the self-employed, such as architects and lawyers, and offer better tax breaks to businesses for research and development costs.

It also said that given its ageing population, Germany must do more to keep women and older people in the workforce longer and that the basis for future growth would depend on the country's investment in education and training.

Data to be released on Wednesday is forecast to show that Europe's debt crisis and weaker global growth resulted in a marked slowdown in the German economy in the final quarter of 2011.

Economists expect the statistics office to say that the country's economy shrank by 0.3 per cent in the last three months of last year.

The ZEW indicator has given 'a clear signal of a change in the economy,' said Commerzbank economist Ralph Solveen.

Still, overhanging the investment outlook is the ongoing uncertainty surrounding Greece and the recession gripping parts of the eurozone.

'Despite the recent calm, the sovereign debt crisis could still easily derail the German economy in 2012,' said ING Bank economist Carsten Brzeski.

'For the time being, it might be too early for new enthusiasm, but there is increasing evidence that the German economy has only gone through a soft patch at the end of last year but is not nearing the abyss any time soon,' he said.

Output data also released on Tuesday by the European Union's statistics office Eurostat added to evidence of the slowdown across the 17-member eurozone as 2011 came to an end.

Eurostat said industrial production in the currency bloc dropped by 1.1 per cent in December. Economists forecast a 1.2-per-cent month-on-month fall in output during December after it stagnated in November.

However, for the full year output in the eurozone expanded by 3.5 per cent.

The ZEW also helps to set the stage for the release this month of a series of key European economic sentiment surveys, including Germany's closely watched Ifo business confidence index, which is due next week.

ZEW said the index's component measuring current conditions increased by 11.9 points to 40.3 points, the highest level since October 2011.

At the same time, ZEW said economic expectations for the eurozone rose by 24.4 points in February and currently stands at minus 8.1 points.

The institute's indicator measuring the current economic situation in the eurozone increased by 2.7 points to minus 49.1 points this month.