Investor confidence in Germany, Europe's biggest economy, rose for a second month in July amid optimism a surge in exports may help boost corporate investment and stem job losses. The ZEW Center for European Economic Research's index of institutional and analyst growth expectations over the next six months rose to 48.4 from 47.4 in June. Economists expected a decline to 47, according to the median of 38 forecasts in a Bloomberg News survey. The index averaged 34.7 since its introduction in December 1991. ``Investors look at rising orders and industrial production, which are boosting confidence about the recovery,'' said Juergen Michels, an economist at Citigroup Inc. in London. ``The growing global economy is ensuring a moderate recovery in Germany.''
German economic growth probably accelerated in the second quarter, the Bundesbank said yesterday, and the government's panel of economic advisers raised its 2004 growth forecast to 1.8 percent from 1.6 percent. Exports, which account for about one- third of the economy, rose for the sixth month in seven in May. The U.S. economy, which the International Monetary Fund expects to grow 4.6 percent this year, is fueling the global recovery, helping German exports. Industrial production and factory orders also gained in May. Morgan Stanley today raised its estimate for 2004 economic growth in the dozen nations using the euro to 1.9 percent from 1.7 percent.
Weak Spot
``In principle, this is good news, but the financial analysts still seem to be waiting for a marked stimulus for domestic demand that would boost the so-far export-led recovery,'' ZEW President Wolfgang Franz said in an e-mailed statement. Consumers have been the weak spot in the recovery across Europe as rising oil prices increase the cost of gasoline and companies are slow to add jobs. German retail sales fell for the sixth month in seven in May. The unemployment rate in the dozen euro nations has risen from 7.9 percent in April 2001 to 9 percent in May of this year and oil prices increased by almost a third in the past 12 months. Italian consumer confidence may have fallen for a third month in four in July, economists expect a report to show tomorrow at 9:30 a.m. in Rome, according to the median of 23 forecasts. French spending probably rose 0.4 percent in June, the smallest gain in five months, a separate survey showed. The report will be published at 8:45 a.m. in Paris on Thursday.
Job Concerns
In Germany, manufacturers may cut more jobs unless workers help rein in costs. DaimlerChrysler AG, the world's fifth-biggest carmaker, is threatening to move 6,000 positions from Mercedes plants in southern Germany unless unions agree to 500 million euros ($622 million) in cost reductions. The works council, which represents employees at the Mercedes factories, has offered to forego a 2006 wage increase worth about 200 million euros. Signs growth in the U.S. and Chinese economies are no longer accelerating may prompt the recovery in Germany to subside, said economists including HVB Group's Andreas Rees and ABN Amro Holding NV's Dario Perkins. U.S. industrial production and retail sales fell in June and companies added fewer jobs that month than economists expected. Growth in the Chinese economy, the world's sixth-largest, slowed to an annual 9.6 percent after 9.8 percent in the first quarter.
``Signs of a softer world economy, especially in the U.S., have already emerged,'' HVB Group's Rees, said in an e-mailed note to investors. ``And as usual, German internal demand has not shifted from first into second gear so far, preventing a strong and sustainable upswing.''
ECB Interest Rates
Consumers and investors won't be able to rely on the European Central Bank to cut interest rates to help revive their appetite for increased spending, futures trading suggests. While yields on December Euribor contracts have dropped 19 basis points in the past four weeks to 2.28 percent in Frankfurt, that compares with the ECB's benchmark lending rate of 2 percent. The contracts settle to the three-month euro area inter-bank offered rate for the euro, which has averaged 15 basis points more than the ECB's key rate since the euro's launch in 1999. The ECB has kept interest rates unchanged at the lowest in almost six decades for the past 13 months, even as the surge in the cost of oil boosted inflation in the region and the Federal Reserve increased borrowing costs for the U.S. for the first time since May 2000. ``Global demand is now slowing thanks to tighter policy in the U.S. and Asia,'' said ABN Amro's Perkins. ``So exports should fade in the second half of the year and domestic demand is still much too weak to take up the slack.'' Confidence in the dozen nations sharing the euro fell to 55.5 from a revised 56.8, though current conditions also improved, ZEW said. Economists expected the index to slip to 55.6.
ZEW, which polled 288 investors and analysts, says its findings are a month ahead of the business-expectations index by the Ifo economic institute. Ifo's July report, one of Europe's most widely watched economic indicators, will be released July 27. A separate index measuring the current economic assessment in Germany rose to minus 69.3 from minus 69.8, ZEW said. ZEW's German expectations index reached a low of -62.2 in December 1992 and peaked at 89.6 in January of 2000. ///www.bloomberg.com