German investor confidence surges in August

23rd August 2005, Comments 0 comments

23 August 2005, BERLIN - German investor confidence surged to a 17-month high in August, as a fall in the euro and signs of stronger global growth helped to fuel optimism about the outlook for Europe's largest economy.

23 August 2005

BERLIN - German investor confidence surged to a 17-month high in August, as a fall in the euro and signs of stronger global growth helped to fuel optimism about the outlook for Europe's largest economy.

Compiled by the Mannheim-based Centre for European Economic Research, the so-called ZEW index leapt to 50 points in August. This followed an 18-point surge in the index to 37 points in July.

The increase in the ZEW's August reading represented the third monthly rise in the survey and came as Germany gears up for an election in mid-September.

In releasing the report, ZEW president Wolfgang Franz said the jump in the indicator also represented the first signs of a long- awaited improvement in domestic demand in Germany.

"Perhaps we are currently observing how the export industry finally kick-starts our domestic economy," he said.

Picking up on the title of the current issue of the British magazine the Economist, Franz asked: "Is 'Germany's surprising economy' getting ready to jump?"

The rise in the ZEW index came in the wake of this year's 10 per cent drop in the euro, which is seen as underpinning Germany's export machine - the key driving force behind the country's growth.

Official data also released Tuesday showed an increase in corporate spending resulting in domestic demand in Germany rising by 0.3 per cent in the second quarter to record its first increase in nine months and consequently pointing to stronger economic growth as the year unfolds.

The data, released by the country's statistics office confirmed that the German economy stalled in the second quarter after a 2.3 per cent rise in imports cancelled out a 1.2 per cent increase in exports, resulting in a negative contribution from trade.

Moreover as a measure of how finely balanced the economic outlook is for Germany, the data showed household consumption slipping 0.3 per cent during the second quarter after dropping 0.5 per cent in the first three month of the year.

At the same time, the statistics office said Germany's public deficit edged down to 3.6 per cent of gross domestic product in the first half of the year compared to four per cent recorded in the same period last year largely due to a rise in revenue.

While this brought the deficit in Europe's biggest economy closer to the three per cent fiscal target for euro member states, it raised the prospects that the country will overshoot the budget rule for the fourth year in a row.

However, the jump in the August ZEW report, which was far more than what analysts had forecast, also helps to allay fears about the impact of soaring oil price on economic sentiment. Economists had expected the index to edge to 37 points.

The rise in August means that the index remains well above its historic average of 34.2 points.

The release of the ZEW index also follows a series of better-than- forecast economic data and indicators with the nation's top companies also reporting a surge in first-half earnings and the country's stock market hitting highs not seen since the New Economy boom about five years ago.

Based on a survey of 322 institutional investors and analysts, the ZEW survey acts as a curtain raiser to the more broadly based and closely watched German Ifo business confidence survey.

Prepared by the Munich-based Ifo economic institute, the business confidence survey is due to be published on Thursday.

Higher industrial output meant that those responding to the ZEW August survey were much more confident about the current economic situation in Germany than last month. The indicator gauging the current economic situation increased from minus 66.7 to minus 61.1 points.

Likewise, the ZEW report shows that economic expectations about the outlook for the 12-member eurozone have also improved. The ZEW indicator measuring expectations in the currency bloc rose by 12.6 points to 41.6 points.

However, the corresponding indicator for the current economic situation in the eurozone changed very little and now stands at minus 33.3 points.


Subject: German news

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