18 Aug 2009
Aug. 18 (Bloomberg) -- German investor confidence jumped to its highest level in more than three years in August after government stimulus and rising exports pulled Europe's largest economy out of recession.The ZEW Center for European Economic Research said its index of investor and analyst expectations rose to 56.1 from 39.5 in July. Economists expected a gain to 45, according to the median of 35 forecasts in a Bloomberg News survey. The survey, which aims to predict developments six months in advance, closed yesterday.
Germany's economy expanded 0.3 percent in the second quarter, a report showed last week, bringing an end to the worst slump since World War II sooner than forecasters had expected. With exports rising and government stimulus programs supporting spending at home, the recovery may accelerate. Germany's benchmark DAX share index has advanced 41 percent since March 6.
"The third quarter should definitely be better than the second, and we believe it'll be a lasting recovery," said Joerg Lueschow, an economist at WestLB in Dusseldorf, Germany. "We should see the ZEW improving for the rest of the year, but we won't get out of this quickly."
Mannheim, Germany-based ZEW's gauge of the current economic situation rose to minus 77.2 from minus 89.3 in July. A survey of 19 economists expected an increase to minus 85. The Economy Ministry has said its forecast for a 6 percent economic contraction this year may now be too pessimistic.
Exports, Cars
Chancellor Angela Merkel's government is spending about 85 billion euros ($120 billion) in an effort to rekindle growth, including a 2,500-euro payment for consumers who scrap their old car and buy a new one. New vehicle registrations in Germany rose 22.8 percent in the first five months of the year from the same period in 2008, the statistics office said yesterday.
Volkswagen AG, Europe's largest carmaker, this month forecast a 5 percent decline in 2009 sales, half the drop it had previously anticipated.
"In recent weeks there have been positive developments in equity markets, and signs global trade is improving, which helps Germany," Lueschow said.
The economic improvement in Germany comes as Merkel campaigns for a second term in office ahead of national elections on Sept. 27. A record 83 percent of Germans predicted Merkel will serve a second four-year term after the vote, according to an Emnid poll published by Bild am Sonntag on Aug. 16. That compares with 9 percent of respondents who opted for Social Democrat Frank-Walter Steinmeier, the newspaper said.
Global Economy
Foreign demand for German goods is picking up as the global economy improves. Japan's economy emerged from recession in the second quarter as well, expanding an annual 3.7 percent, and German exports jumped 7 percent in June from May, the most in nearly three years.
Still, with unemployment rising, there's a risk the recovery will falter when stimulus programs expire. Germany's "cash-for-clunkers" subsidy is due to run out at the end of the year, as is a similar program in neighboring France.
The stronger euro could also hurt exports as it makes German goods more expensive abroad. Europe's single currency has gained 13 percent against the dollar since February and traded at $1.4130 at 9:33 a.m. in Frankfurt.
The DAX Index has also dropped 3 percent since Aug. 13 as investors speculated that a rally in stocks has outpaced prospects for a recovery.
"The economy will weaken again in 2010, as we're expecting a ‘W' shaped recession," Jean-Christophe Caffet, an economist at Natixis in Paris said. "Before things stabilize there will be another correction, although the second dip of the ‘W' might not be as deep as the first."
