German investor confidence slumped to its lowest level in almost two years in November as slowing global economic growth and fears about the impact of the euro's surge on exports fuelled pessimism, a survey showed on Tuesday. The Mannheim-based ZEW economic research institute said its closely-watched expectations indicator fell far more than expected to 13.9 in November, the lowest since December 2002. That compared with a reading of 31.3 in October and a forecast, based on a poll of 27 economists, of 30.0. "This figure is a real disappointment," said Klaus Schruefer, an economist at SEB in Frankfurt. "It's a sign that the recovery we've seen since last autumn will slow appreciably." European stocks wobbled and the euro weakened to $1.2891 after the survey -- which is based on responses from 304 analysts and institutional investors -- moving further away from Monday's record high of $1.2985 . Euro zone government bond futures briefly extended gains, with the December Bund future up one tick at 116.73. Responding to the ZEW, the Economy Ministry said the euro's strength had hurt German exporters and persistently high oil prices were reducing purchasing power in the domestic economy. The ZEW survey provides a pointer to the direction of the Munich-based Ifo institute's key measure of business sentiment, seen as a more important indicator of the health of Germany's economy, which is next due on November 25. "If (the ZEW reading) is reflected in the Ifo survey then we would expect less capital expenditure and less jobs growth in the German economy over the next six months," said James Carrick, European economist at ABN AMRO bank.
ECONOMY MAY HAVE PEAKED
Germany, Europe's largest economy, has relied on demand from abroad for its machinery, chemicals and cars to power a recovery from three years of stagnation. However, a slew of disappointing data and gloomy corporate reports in recent weeks have increased concern that the economy may have peaked in the second quarter. The ZEW "was a clear-cut crash and quite a surprise. This supplies further indications that the economy has already peaked this year," said Jens-Oliver Niklasch, analyst at Landesbank Baden-Wuerttemberg. A government report due on Thursday is likely to show German gross domestic product increased by just 0.3 percent in the third quarter, down from growth of 0.5 percent in the second, according to a poll of economists. Lehman Brothers economist Michael Hume said the ZEW reading would amplify policymakers' concerns about the negative impact of the euro's rise and its effect on exports. European Central Bank Governing Council member Guy Quaden said on Tuesday further euro appreciation would be undesirable, reinforcing comments on Monday made by ECB President Jean-Claude Trichet who criticised "brutal" foreign exchange movements. Separately on Tuesday, Germany's annual inflation rate for October, calculated according to European Union methodology, was revised down, suggesting broader euro zone inflation did not quicken as much as previously estimated. Analysts said that although inflation in the 12-nation bloc probably accelerated to 2.4 percent last month, above the ECB's two percent target, growth was still too slow to warrant an increase in borrowing costs. A separate ZEW gauge of current conditions rose to minus 57.8 from minus 58.9, while a measure of expectations for the 12-nation euro zone fell to 22.1 from 37.6. ZEW began the survey on October 25 and closed it on Monday November 8 at 1600 GMT.///www..com