/www.bloomberg.com/ By Rainer Buergin
Mannheim, Germany, Oct. 15 (Bloomberg) -- German analysts and institutional investors were more pessimistic than at any time in 11 months in October, a survey showed, as stock markets tumbled and the economic recovery faltered.
The ZEW Center for European Economic Research said its index measuring expectations for German economic growth fell to 23.4 points from 39.5 points in September. Economists had forecast a reading of 32. The institute surveys 319 investors and analysts.
``Analysts are signaling a significant clouding over of the growth outlook for 2003,'' ZEW President Wolfgang Franz said in a statement.
Germany's benchmark DAX Index shed almost a quarter last month, when U.S. and European stock indexes ended their worst quarter since 1987. German business confidence fell for a fourth month in September and unemployment held near a three-year high.
The yield on the 3.25 percent, two-year government note maturing in September 2004 fell as much as two basis points to 3.26 percent after the ZEW published its figures. A basis point is 0.01 percentage point.
The country's six leading economic institutes may pare their 2002 growth forecast to about 0.5 percent from an April forecast of 0.9 percent, said Ruediger Pohl, head of the IWH economic institute. The forecast for next year may be cut to 1.5 percent from 2.4 percent, said Pohl, whose institute is one of the six.
The German foreign trade association BGA today pared its forecast for export growth this year to 1.25 percent from as much as 4 percent. ``The weak economy in the European Union and the U.S., our main markets, is taking full effect on our exports,'' said Anton Boerner, the group's president.
Interest Rates
European Central Bank President Wim Duisenberg Thursday said the effect of tumbling markets on the euro economy, to which Germany contributes a third, has been ``rather dramatic.'' Economic activity in the region ``remains subdued'' and hopes of accelerating economic growth this year ``will not materialize.''
The European Commission last week lowered its economic growth forecast for the dozen-nation euro economy for the fifth time this year. The ZEW institute said its index measuring growth expectations for the region fell to 34.3 from 43.
Some investors expect the ECB to pare interest rates to boost growth. The implied yield on three-month Euribor contract due in March 2003 is 3.04 percent, compared with a money-market rate of 3.28 percent and the ECB's main lending rate of 3.25 percent.
ECB governing council member Guy Quaden said he doesn't ``exclude a rate cut in Europe if it is consistent with the ECB's constitutional inflation target.'' A reduction in borrowing costs ``could contribute to optimism replacing pessimism,'' he said today in an interview with the Dutch newspaper De Standaard.
Election Outcome
Investors are becoming more pessimistic because of the ``worsening global growth outlook and the outcome of the German elections,'' said Joerg Kraemer, an economist at Invesco Asset Management in Frankfurt. U.S. retail sales last month posted their biggest drop since November and Chancellor Gerhard Schroeder narrowly won a second term.
``The slim majority will probably not suffice to implement the long-overdue economic reforms that economists have insisted on,'' said Hans-Werner Sinn, president of the Ifo economic institute. ``Germany is enmeshed in a fundamental economic crisis that has less to do with the business cycle than with the structural encrustations of the social system.''
The ZEW indexes represent the difference between positive and negative responses in a survey of institutional investors and analysts.