•German Investor Confidence Unexpectedly Drops as Economy Remains `Fragile'

Wait! They said German Consumer Confidence was going to reach a two year high!

What happened?

Green Shoots!

http://www.bloomberg.com/apps/news?pid=20601068&sid=aGIJJ3xkbZ1A

German Investor Sentiment Drops on Economic ‘Realism’ (Update2)
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By Jana Randow

Oct. 13 (Bloomberg) -- German investor confidence unexpectedly declined for the first time in three months in October amid concerns that the pace of the nascent recovery in Europe’s largest economy may ease.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict developments six months ahead, dropped to 56 from 57.7 in September. Economists had forecast an increase to 58.8, the median of 36 forecasts in a Bloomberg News survey showed.

Germany’s benchmark DAX index has surged around 57 percent since early March as the economy pulled out of the worst recession since World War II. While growth probably accelerated in the third quarter, according to the Bundesbank, the pace of the recovery may be tempered by rising unemployment, the fading of stimulus measures and the euro’s increase against the dollar.

“Enthusiasm is now gradually giving way to realism and the German economy is about to enter calmer waters,” said Carsten Brzeski, an economist at ING Groep in Brussels. Today’s reading is “no reason to fall back into depression.”

Most European stocks declined today after the report. Both the DAX and the Dow Jones Stoxx 600 were down 0.4 percent as of 1:52 p.m. in London. The Stoxx 600 has gained around 54 percent since early March.

‘More Potential’

The ZEW surveyed 288 analysts and the decline in the index takes it from the highest level in more than three years. At the same time, business confidence as measured by the Munich-based Ifo institute only reached a 12-month high in September.

The ZEW index “has already made up for most of the recession-related losses, so we’ll probably see a slowdown,” said Stefan Muetze, an economist at Helaba in Frankfurt. The Ifo, which is based on the assessment of 7,000 company executives, “still has more potential,” he said.

Andreas Scheuerle, an economist at DekaBank in Frankfurt who correctly forecast the ZEW reading, said analysts have given the recovery an “early round of applause, which the economy has to live up to now.” He has described the Ifo index as the “best forward-looking indicator.”

‘Too Much, Too Soon’

The stock-market gains may reverse if the recovery isn’t sustained. Nouriel Roubini, the New York University professor who predicted the financial crisis, on Oct. 3 said that markets have “gone up too much, too soon, too fast.”

Deutsche Bank AG Chief Executive Officer Josef Ackermann said yesterday that the global financial industry and economy remain “fragile” because of the threat of corporate insolvencies and rising unemployment.

“The wave of corporate insolvencies, the impact of higher unemployment on the credit books -- this all lies ahead and not behind the banks,” he said.

Germany’s economy probably expanded around 0.75 percent in the third quarter from the second, when it grew 0.3 percent, Bundesbank President Axel Weber said Oct. 3. Still, the recovery “continues to rely on support from fiscal and monetary policies, and that shouldn’t be withdrawn too quickly,” he said.

The government is spending 85 billion euros ($125 billion) to revive growth, including a 2,500-euro payment for people who scrap an old car to buy a new one. The 5-billion-euro car- purchase fund ran dry last month. The Bundesbank projects unemployment will rise to 10.5 percent in 2010 from 8.2 percent in September.

‘Bumpy’

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.

“We’ve had quite a remarkable summer with catch-up processes that boosted economic activity,” said Laurent Bilke, an economist at Nomura in London. “Now we expect a normalization and a come-back toward the underlying trend, which is obviously lower. But it won’t be a relapse.”

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net
Last Updated: October 13, 2009 08:53 EDT