Tuesday, December 11, 2007

German Investor Confidence Decline to 15-Year Low (Update3)

By Gabi Thesing

Dec. 11 (Bloomberg) -- Investor confidence in Germany dropped more than economists forecast in December, reaching the lowest level in almost 15 years, as rising credit costs dimmed the outlook for economic growth.

The Mannheim-based ZEW Center for European Economic Research said its index of investor and analyst expectations fell to minus 37.2, the lowest since January 1993, from minus 32.5 last month. Economists expected a decline to minus 34.5, the median of 41 forecasts in a Bloomberg News survey showed.

European stocks fell for the first time in five days, with the Dow Jones Stoxx 600 Index declining as much as 0.5 percent. The U.S. housing slump has pushed money-market rates to the highest in at least six years, adding to record oil costs and the strongest euro ever in hurting companies. Investors expect the credit squeeze to continue beyond the first quarter of 2008, the Bank for International Settlements said yesterday.

``The gloom reflects investors' concerns about the economy,'' said Gareth Claase, an economist at Royal Bank of Scotland. ``At the same time, don't forget that it is financial analysts filling in the forms. So their sentiment about their own industry maybe exaggerated their pessimism.''

The Dow Jones Stoxx 600 Index fell to as low as 373.34 after the report. It was at 374.86 at 1:23 p.m. in Frankfurt. The euro weakened to $1.4668 from $1.4713.

Mortgage Losses

Borrowing costs jumped in mid-August as banks, including Bear Stearns Cos. and Merrill Lynch & Co., began to reveal losses on securities linked to U.S. mortgages aimed at people with poor credit histories. Losses from U.S. subprime mortgage foreclosures will probably reach $300 billion, the Organization for Economic Cooperation and Development predicted on Nov. 22.

The cost of borrowing euros for three months rose to the highest since December 2000 today as banks hoarded cash to cover their commitments over year-end.

The euro interbank offered rate, the amount banks charge each other for such loans, rose 3 basis points to 4.93 percent, the European Banking Federation said today. That's 93 basis points more than the European Central Bank's benchmark rate

The slump in global credit markets may force banks, brokerages and hedge funds to cut lending by $2 trillion and trigger a ``substantial recession'' in the U.S., Goldman Sachs Group Inc. forecast on Nov. 16.

Slowing Growth

Growth in Germany will slow to 1.7 percent next year from 2.6 percent this year, the RWI economic group forecast last week. This will also be a drag on the economic expansion in the 13 nations sharing the euro, which will cool to 1.9 percent from 2.6 percent this year, according to the Organization for Economic Cooperation and Development.

The ZEW gauge assessing the current situation fell to 63.5 from 70 last month, the biggest drop since the financial markets crisis started in August. Economists expected a reading of 67.3.

ECB Executive Board member Lorenzo Bini Smaghi said yesterday that banks' concern that liquidity would dry up at year end is ``unjustified.''

The ECB ``can't come to the conclusion that there is a credit crunch'' in Europe, he said, although ``that doesn't mean there couldn't be a less favorable evolution going forward.''

For now, Germany's DAX index is still the strongest performer among Group of Seven nations stock benchmarks, having gained 22 percent this year amid signs German companies are weathering a strong euro and higher credit costs.

Exports Gain

German exports unexpectedly rose in October, pushing the trade surplus to a record, and manufacturing orders rose the most in four months, reports in the last week showed. Business confidence in Europe's largest economy last month also advanced.

Still, the euro's 11 percent advance against the dollar this year is making German exports less competitive abroad, adding to investors' concerns. Exports last year powered the country's 2.9 percent economic expansion, the fastest in six years.

Domestic demand may not offset a fall-off in foreign sales as oil-driven inflation is sapping consumer and company spending power. Last month, consumer prices rose 3.3 percent from a year ago, the most since records began in 1996. The price of oil has gained 44 percent this year.

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