German investor confidence falls again

17th February 2004, Comments 0 comments

17 February 2004 , BERLIN - German investor confidence fell in February for the second consecutive month, a key economic indicator released Tuesday showed, pointing to concerns that a surging euro and a slowdown in the pace of economic reform could set back recovery in Europe's biggest economy. Compiled by the Mannheim-based Centre for European Economic Research, the so-called ZEW index dropped to 69.9 points after falling to 72.9 points in January. The index charged ahead to 73.4 points in December and st

17 February 2004

BERLIN - German investor confidence fell in February for the second consecutive month, a key economic indicator released Tuesday showed, pointing to concerns that a surging euro and a slowdown in the pace of economic reform could set back recovery in Europe's biggest economy.

Compiled by the Mannheim-based Centre for European Economic Research, the so-called ZEW index dropped to 69.9 points after falling to 72.9 points in January. The index charged ahead to 73.4 points in December and stood at 60.3 points in October.

The drop in February was bigger than forecast by economists, who had expected the index to have slipped to about 72 points this month.

Coming at a time when consumers appear reluctant to go out and spend, the ZEW report raises concerns that Germany's long-awaited recovery might not live up to expectations and casts doubt on Chancellor Gerhard Schroeder's hopes that a rebound in the economy will help to ease the country's high unemployment level.

While the European Central Bank has been arguing that the pickup in the global economy would help to offset the ill-effects of the strong euro, economists have been expressing concerns that the soaring currency might mean exports could tamper off before private consumption picked up.

It seems as if the experts are concerned about the lasting strength of the euro as it could affect corporate profits in the long term, ZEW said releasing the report.

After rising by about 20 percent against the dollar last year and hitting an all-time high in January of USD 1.29 dollars, the euro has been gaining strength again this week pushing back up towards testing the key USD 1.30 dollars.

In a bid to underpin growth, Schroeder has launched his so-called Agenda 2010 which includes reforms to Germany's inflexible labour market as well as far-reaching changes to the country's lumbering health, welfare and tax systems.

But despite the insistence of Schroeder and other senior members of his ruling Social Democrat-led coalition that Berlin remains on a reform course, analysts believe that with the government having to fight 14 state, regional and European elections, further tough and unpopular economic reforms are now unlikely before the next national election set down for 2006.

Indeed in releasing the index, the ZEW said that the fall in the indicator also pointed to worries that the necessary reforms might now not be introduced to help underpin economic growth in Germany.

The expected economic upswing is characterised by external risks anyway, said ZEW President Wolfgang Franz. If the reforms are diluted now, Germany will experience the worldwide economic upswing only with the handbrake pulled.

Based on a survey of 308 institutional investors and analysts, the ZEW survey acts as a curtain raiser to the release later in the month of the more broadly based and closely watched German Ifo business confidence survey.

The ZEW claims that its survey leads the Ifo report in measuring economic sentiment with the Ifo index rising in January to hit a three-year high.

But while those responding to the ZEW survey were gloomy about business conditions six months down the track, their evaluation of the nations current economic situation brightened slightly in February.

Nevertheless, 72.2 percent of those interviewed - compared to 78.2 percent in the previous month - still felt that the economic situation in Germany was poor.

The ZEW survey also pointed to an equally grim assessment of the prospects for the 12-member eurozone.

The ZEW's eurozone indicator lost 4.5 percent compared with last month's figures and now stands at 75.6 points.

At the same time, 56.2 percent of those interviewed regarded the current economic situation in the eurozone as poor.

 

DPA
Subject: German news

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