Tuesday, April 15, 2008

German Investor Confidence Unexpectedly Fell in April (Update1)

By Gabi Thesing

April 15 (Bloomberg) -- Investor confidence in Germany unexpectedly fell in April on concern faster inflation, a stronger euro and fallout from the U.S. housing recession will hurt company earnings.

The ZEW Center for European Economic Research said its index of investor and analyst expectations declined to minus 40.7 from minus 32 in March. Economists expected a gain to minus 30, according to the median of 41 forecasts in a Bloomberg News survey. The gauge reached a 15-year low of minus 41.6 in January.

Germany's benchmark DAX share index has dropped 19 percent this year, the biggest decline among major European stock markets. While growth in Europe's largest economy is holding up, the outlook is deteriorating as record food and oil prices sap consumers' purchasing power, the U.S. teeters on the brink of a recession and the euro's gain hurts export competitiveness.

``News flow over the past month has been getting worse,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. ``Investors worry about company margins as the economic outlook deteriorates, the euro surges and inflation boosts their bills and hurts consumer spending.''

The euro dropped more than half a cent to $1.5828 at 11:06 a.m. in Frankfurt after the report was released. The DAX index retreated as much as 25 points to an intra-day low of 6532.76.

Raw Material Costs

Siemens AG, Europe's biggest engineering company, said March 17 that rising raw material costs will hurt earnings. Hochtief AG, the country's largest construction company, said March 26 it doesn't expect profit to grow this year as orders slow.

The International Monetary Fund last week cut its prediction for German economic growth this year to 1.4 percent from 1.6 percent. The IMF recommended the European Central Bank start cutting interest rates.

Defaults on U.S. subprime mortgages have caused about $245 billion in asset writedowns and credit losses so far at the world's biggest banks and securities firms. That's made banks reluctant to lend, pushing up borrowing costs globally.

A third of medium-sized German companies are already finding it more difficult to get loans, the Creditreform agency said April 1. The cost of borrowing euros for three months rose to 4.75 percent yesterday, the highest level since Dec. 27.

Companies and consumers are also grappling with higher energy and food prices, which drove Germany's inflation rate to 3.2 percent last month. Crude oil prices have climbed 76 percent over the past year, reaching a record $112.48 today.

Export Boom

Still, moderate wage accords and an export boom have helped shore up investment, which together with higher employment will sustain economic growth this year, the Organization for Economic Cooperation and Development said April 9. It kept its forecast for German growth this year unchanged at 2.1 percent.

German companies ``still find themselves in a good position to expand investment and jobs, even if the global credit crisis and rising commodity prices will slow the pace'' of expansion, the OECD said.

The economy is ``more robust than the U.S.,'' German Finance Minister Peer Steinbrueck said April 11, adding he sees no need to ``correct our growth expectation'' for 2008 of 1.7 percent.

The economy had a ``good'' first quarter, Bundesbank President and ECB council member Axel Weber said April 11. ``I don't share the International Monetary Fund's pessimistic view.''

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