Investor confidence in Germany, Europe's biggest economy, dropped to a 10-month low in May amid stagnating consumer spending and rising oil prices, casting doubt on the strength of the recovery. The Mannheim-based ZEW Center for European Economic Research said its index of institutional investor and analyst sentiment fell to 46.4 from 49.7 in April. Economists predicted a drop to 49, according to the median of 36 forecasts in a Bloomberg News survey. The index touched a 42-month high of 73.4 in December.
``The recovery is anemic and it will continue that way,'' said Joerg Kraemer, chief economist at Invesco Asset Management in Frankfurt and one of the 313 participants in the ZEW survey. ``The positive first quarter was entirely due to exports.'' Germany's economy is showing no signs of a ``self- sustaining'' recovery as rising unemployment and concern about the future prompt households to increase savings rather than spending, the Bundesbank said on Monday. Economic growth of 0.4 percent in the first quarter, the fastest in three years, was driven entirely by demand from abroad, the government said. The euro dropped and stocks pared gains after the ZEW report. The euro fell 0.4 percent to $1.1976 at 12:11 p.m. in Frankfurt from $1.2027 late yesterday in New York. The DAX 30 index rose 0.1 percent to 3759.65 after falling 1.3 percent yesterday. The DAX has dropped more than 5 percent this year, while the Dow Jones Euro Stoxx 50 Index has declined about 2 percent in the period.
`No Good Omen'
``A change in sentiment among financial analysts isn't there -- that's no good omen for the economic recovery that has been hoped for,'' said ZEW President Wolfgang Franz in a statement. Concerns about the strength of the recovery increased in May because of the surge in oil prices, expectations of higher interest rates and weak demand in Germany, ZEW said. The ZEW institute says its findings foreshadow the business- expectations index compiled by the Munich-based Ifo institute by a month. Ifo's report, one of Europe's most widely watched economic indicators, is due for release next week. Ifo's main index rose last month, while ZEW's index dropped. ``We believe that there will be no sustained improvement in the German consumer climate over the next months,'' Medion AG, a German electronics distributor, said today. The company, which sells personal computers through Aldi Group's discount grocery stores, is forecasting sales growth of more than 10 percent this year amid demand in regions such as Asia and Eastern Europe.
Global Growth
Germany's growth of 0.4 percent in the first quarter was less than the 0.6 percent for the average of the 12 nations sharing the euro and less than half the 1 percent pace the U.S. reported for the same period, on a comparable basis. Japan's economy expanded 1.4 percent, the Cabinet Office said today. ``The global economy is relatively robust,'' said Thorsten Polleit, an economist at Barclays Capital in Frankfurt. ``The recovery will continue, also in the euro area.'' The first-quarter figures confirm the European Central Bank's prediction of a ``gradual recovery'' in the region, President Jean- Claude Trichet said last week. Belgian central bank vice governor Luc Coene said yesterday that the better-than-expected figures make it ``difficult'' to argue for another rate cut. Most investors expect the ECB's next move to be up, with some even betting on an increase in September, interest rate futures trading shows. The yield on the three-month contract for September settlement has risen to 2.21 percent today from 1.85 percent on March 26. The money market rate is at 2.09 percent.
Faster Inflation
Inflation rose to the ECB's 2 percent limit in April from 1.7 percent in March, as energy and clothing costs increased, the European Union's office said today, confirming an April 30 estimate. Prices rose 0.4 percent in the month. In Germany, producer prices rose for a third straight month in April, the Federal Statistics Office said today. Prices increased 0.4 percent from March and 0.9 percent from the previous year, boosted by the cost of steel and other metals. Rising bond yields and higher oil prices have already increased companies' costs. The yield on the benchmark German 10- year 4.25 percent note due Jan. 4, 2014 has gained almost half a percentage point since late March.
U.S. crude oil prices jumped to a record yesterday after the head of Iraq's governing council was killed by a car bomb, and explosions damaged U.K. banks in Turkey. ``We have seen that higher oil prices, combined with higher central bank rates, can unleash a recession,'' said Gabriele Widmann, an economist at Dekabank in Frankfurt. ``That worries investors.'' ///www.bloomberg.com