BERLIN, Oct 14 - German investor confidence unexpectedly fell for the first time this year in October, as a stronger euro dampened prospects for exporters and threatened a recovery in Europe's biggest economy, a key survey showed. The ZEW institute's investor expectations indicator, a bellwether of sentiment ahead of the influential Ifo business climate index, fell 0.6 points to 60.3 in October defying analysts' expectations for an increase to 62.5. "The reasons for the sideways movement in the expectations indicator are to be found partly in the recent strengthening of the euro, which will hurt exporters' sales and profits," ZEW said in a statement published on Tuesday. An indicator gauging current conditions improved 4.3 points to -87.4, ZEW said. "Optimism remains but uncertainty about the economic recovery hasn't completely disappeared," the institute said. Mannheim-based ZEW surveys about 300 analysts and institutional investors every month.
Germany's economic recovery may be hampered by the euro's recent surge, which makes goods sold outside the single currency region more expensive. Exports account for about a third of the German economy and about 60 percent go outside the euro zone. The head of the VDMA engineering association, Diether Klingelnberg, earlier said he expects the euro to strengthen above $1.20 before the end of this year, from about $1.17 now. "That would really hurt," he said at a news conference. Germany's BDB banking association today cut its 2003 growth forecast to zero, from 0.1 percent, and said foreign exchange rates remain the biggest risk to the world economy. Tuesday's ZEW survey comes as German Chancellor Gerhard Schroeder attempts to force reforms to the labour market through the lower house of parliament. Schroeder has staked his government on the success of the reform package, which is designed to help revive the economy and boost employment. He looks likely to win Friday's vote after rebel deputies from his ruling SPD party signalled they were happy with concessions Schroeder offered to win them over. Jan-Paul Ritscher, an economist at HSH Nordbank, said he did not attach particular importance to the slight drop in October's ZEW indicator.
"If it is now dropping a bit, it's no cause for concern," Ritscher said. "It's too early for fresh pessimism. We're expecting a gradual upswing from 2004." Bernd Weidensteiner, an economist at DZ Bank, said the ZEW survey paints a "standard pattern" for an economic recovery. "Expectations are pointing upwards and the indicators for the current situation are still presenting a mixed picture," Weidensteiner said. "We won't see a really nice recovery until next year." An indicator that measures expectations for the dozen euro nations fell 2.8 points to 66.8, the ZEW survey showed. "Growth expectations for the euro zone remain more upbeat than those for Germany," the institute said.//