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German investor confidencedrops on recovery doubts

20 April 2004

HAMBURG – Germany’s economic outlook clouded Tuesday as a series of reports raised questions about the strength of the economic recovery and about Berlin’s tax revenues.

In Mannheim, the Centre for European Economic Research (ZEW) reported the fourth straight monthly decline in investor confidence, while in Frankfurt the chief economist for Allianz and Dresdner Bank lowered economic growth projections for Germany.

The ZEW, in its closely watched indicator of economic sentiment, said that investor confidence in April had faded again amid increasing questions about the sustainability of the German economic upswing.

The ZEW said its indicator dropped sharply to 49.7 points in April compared with 57.6 points in March.

Economists had expected the index, which is seen as a curtain raiser to the more broadly based Ifo business confidence survey and which is to be released later in the month.

The ZEW indicator is based on a survey taken among 306 analysts and institutional investors, with the points representing the balance between positive and negative expectations concerning future economic activity in Germany for the coming six months.

The Mannheim-based ZEW said more and more experts were doubting the sustainability of Germany’s recovery despite better job market data in the United States pointing to a sustainable worldwide economic recovery.

The ZEW analysis pointed to recent German data such as industrial output and order figures, along with a “very weak” job market recovery and rising oil prices as factors behind the drop in the mood among investors in Europe’s largest economy.

“Optimism among the financial experts is giving way to realism. Further economic recovery this year is by no means certain yet,” said ZEW President Wolfgang Franz.

The ZEW did say that experts were slightly more upbeat about their current business outlook, with that indicator, expressed in minus points, showing a reading of 72.5, as against 72.7 in March.

But at the same time, economic sentiment for the eurozone in the coming six months worsened in April, this indicator losing 5.2 points to stand at 59.1 points concerning the expectations for the next six months, the ZEW said.

In Frankfurt, Michael Heise, chief economist for Allianz and Dresdner Bank, said that he now foresaw only 1.4 percent growth for Germany this year and 1.6 percent next year. Last autumn, the projection for 2004 was put at two percent.

“The recovery is going to remain a weak one,” Heise said, saying the chief factor is weak private consumption.

Also in Frankfurt, the daily paper Frankfurter Rundschau said that Berlin’s hopes for rising tax revenues had received a setback.

After increases in the first two months, tax proceeds in March were down almost 7 percent from those a year earlier, the paper said. The reasons were the sluggish economy, tax reductions and the low wage rises.

The paper cited tax authorities as estimating that Germany’s tax revenues for the first three months were down by 0.4 percent, raising questions about Berlin’s expectations of an increase of 2.7 percent for the year as a whole.

The reports on Tuesday followed those the day before when the IW economic research institute raised serious questions about the strength of the upturn in the economy while also warning that no relief was seen in the job market.

The IW said its survey of 1,133 companies in Germany showed a mood of doubt about the prospects for a far-reaching recovery.

At the same time, the influential Federation of German Industry BDI joined in the chorus doubting the strength of the economic upturn, predicting that 2 percent growth is no longer reachable. BDI president Michael Rogowski said he expected a rise of at most between 1.5 and 1.7 percent.

The spate of reports appeared to have rankled Economics Minister Wolfgang Clement, who insisted the economy would meet Berlin’s projection of 1.5 to two percent growth this year.

At the Hanover Fair, Clement blasted the academics for their point-shaving economic growth projections.

“There is not one academic who can explain why the growth forecast is reduced from 1.6 to 1.5 (percent), or the other way around,” Clement said Tuesday. “This growth discussion in the scope of per thousandth is of little help.”

Meanwhile, Germany’s hard-pressed building industry offered a ray of hope for Europe’s biggest economy with data released Tuesday pointing to an upturn in February with new orders rising for the first time in almost two years.

The Federal Statistics Office said orders rose 2.5 percent year-on-year, the first annual upturn since March 2002.

The improvement came on a 14 percent increase in commercial construction orders, reflecting big-volume contracts for a congress centre in eastern Germany and an exhibition hall for the Hamburg fairgrounds, the office said.

But civil engineering orders (excluding buildings) were down 11.6 percent compared with February 2003.

The office also said the employment in the building sector worsened further. February job rolls numbered 711,000, down 6.1 percent from twelve months earlier.


Subject: German news