German investor confidence fell the most in 16 months in March, exacerbated by the bombings in Madrid, amid concern about the strength of a recovery in Europe's largest economy, the ZEW Center for European Economic Research said. The Mannheim-based ZEW said its index of institutional investor and analyst sentiment fell to 57.6, the lowest since August, from 69.9 in February. Economists expected a drop to 65.8, according to the median forecast of 34 Bloomberg News surveyed. The index touched a 42-month high in December.
``The decline reflects the fact that many analysts are beginning to pare their economic growth forecasts for Europe and Germany,'' said Martin Hochstein, who helps manage about $4.6 billion at SEB Investment-Fonds GmbH in Frankfurt. If it is proven that al-Qaeda was behind the Madrid attacks, ``then this will have global implications on sentiment and risk aversions will rise.'' German economic institutes and banks including Morgan Stanley already pared their growth forecasts before Thursday's Madrid attacks, citing slowing export growth and stagnating consumer spending. Germany's BGA exporters' and wholesalers' group today cut its German growth estimate to 1.2 percent from 1.5 percent. ZEW said the index measuring the responses received before the bombings was 59.1. After the attacks, the index shows a reading of 55.9. About 45 percent of the 313 investors and analysts responded after the attacks, the institute said. Reduced Growth Forecasts Europe's Dow Jones Stocks 50 Index has fallen more than 4 percent since Wednesday. Stocks were rising at the beginning of the year on optimism of a recovery. A videotape purportedly from al-Qaeda showed a man claiming responsibility for the bombings and saying that more attacks are planned. The Dow Jones Industrial Average shed more than 1.8 percent. Bundesbank President Ernst Welteke last week said Germany is recovering at a slower pace than he expected. Three of Germany's six leading economic institutes have pared their growth forecasts. Morgan Stanley this month lowered its 2004 prediction for Germany to 1.8 percent from 2.1 percent. Germany's economy grew just 0.2 percent in the fourth quarter from the previous three months as export growth slowed and consumers pared spending on concerns about job losses. By contrast, the U.S. economy grew 1 percent and Japan's 1.7 percent. Volkswagen AG plans to cut 5,000 jobs as it expects profit to be ``lousy'' in first quarter, partly because of the euro's 21 percent appreciation against the dollar since the start of 2003.
`Mixed' U.S. Figures
``Even without Madrid the result would have been very unfavorable,'' said Gerd Hassel, an economist at ING BHF-Bank AG in Frankfurt, whose forecast of 59.9 came closest to the actual figure and was made before the Madrid bombings. ``The recovery may now get a damper, as U.S. economic figures are mixed.'' U.S. companies added 21,000 jobs in February, less than the 130,000 expected by economists surveyed by Bloomberg News. Growth in U.S. manufacturing and services industries slowed that month, reports from the Institute for Supply Management showed earlier this month. Still, industrial production in the world's biggest economy rose 0.7 percent, the Federal Reserve said yesterday. ``Many people think the economy is going to deteriorate again, in the U.S. and in Europe,'' said Conrad Mattern, chief economist at Activest Investment in Munich, which manages about $50 billion. An index showing the economic expectations of investors and analysts for the dozen nations sharing the euro fell to 64.3 from 75.6, ZEW also said.
Relying on Exports
``Should the world economy stall alongside the U.S. economy, Germany's recovery could be throttled,'' ZEW President Wolfgang Franz said in a statement. ZEW says its findings foreshadow the business-expectations index compiled by the Munich-based Ifo institute by a month. Ifo's March report, one of Europe's most widely watched economic indicators, is due for release on March 26. Germany is relying on foreign demand to drive growth as rising unemployment prompts consumers to keep a lid on spending, which accounts for more than half of gross domestic product. Exports pulled the economy out of recession in the second half of last year as household consumption fell. The European Central Bank sees a ``gradual'' recovery in the euro region this year. ``Although the information and indicators at the moment are actually a little contradictory, we expect the recovery will gradually strengthen and broaden out,'' ECB Chief Economist Otmar Issing said in an interview with Austrian magazine Profil released yesterday.
ECB to Discuss Attacks
Austrian central bank governor and ECB council member Klaus Liebscher said he expects the bank's governing council to discuss the effect of last week's terrorist attacks on growth when it meets on Thursday, Austrian newspaper Kurier reported today. In the long run, recession fears such as after the Sept. 11 attacks ``less likely because we are still in a phase of robust global recovery with different centers of growth,'' SEB's Hochstein said. The Fed is expected to say at 2:15 p.m. Washington time that it left interest rates unchanged at a 46-year low of 1 percent, according to the median forecast of 103 economists surveyed by Bloomberg News. The ECB's 18 policy makers kept their benchmark refinancing rate at 2 percent at their last meeting on March 4, the lowest in more than half a century for any euro country. ///www.bloomberg.com