German investor confidence fell to the lowest in almost three years in October as Europe’s debt crisis threatened to infect banks and curb economic growth.
The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict developments six months in advance, declined to minus 48.3 from minus 43.3 in September. That’s the lowest since November 2008. Economists expected a drop to minus 45, according to the median of 39 estimates in a Bloomberg News survey.
Stocks and the euro erased gains yesterday after the German government said European leaders won’t deliver a complete solution to the region’s debt crisis at an Oct. 23 summit. While Germany’s Bundesbank yesterday predicted “strong” growth in the third quarter thanks to a rebound in industrial production and private consumption, it said the outlook has deteriorated.
“The slowdown has finally arrived in Germany,” said Jens Kramer, an economist at NordLB in Hanover. “However, we are talking slowdown, the economy is not going to fall off a cliff.”
ZEW’s gauge of current conditions fell to 38.4 from 43.6. The euro extended its decline after the report and traded at $1.3668 at 11:10 a.m. in Frankfurt.
While Germany’s benchmark DAX share index has dropped 20 percent since the end of July, it has gained in the past two weeks. SAP AG, the world’s largest maker of business-management software, on Oct. 14 reported third-quarter earnings that beat analysts’ estimates.
Reasons for Optimism
“There are reasons to be a bit more optimistic,” said Carsten Brzeski, an economist at ING Group in Brussels. “Stock markets are climbing, politicians are finally grasping the nettle, the European Central Bank is flooding markets with cash, and the U.S. economy is looking a bit better.”
Euro-area governments say they are committed to putting an end to the turmoil that has gripped the region for the past two years. Group of 20 finance ministers and central bankers concluded weekend talks in Paris endorsing parts of an emerging plan to avoid a Greek default, bolster banks and curb contagion. They set the Oct. 23 summit of European leaders in Brussels as the deadline for it to be delivered.
Still, German Chancellor Angela Merkel has made it clear that “dreams that are taking hold again now that with this package everything will be solved and everything will be over on Monday won’t be able to be fulfilled,” Steffen Seibert, Merkel’s chief spokesman, said at a briefing in Berlin yesterday. The search for an end to the crisis “surely extends well into next year,” he said.
Forecast Cut
Germany’s top economic institutes on Oct. 13 cut their 2012 forecast for growth by more than half as the crisis weighs on banks and spending, though they said Europe’s largest economy will probably avoid recession.
Growth will slow to 0.8 percent next year from 2.9 percent in 2011, the institutes said in a bi-annual independent report commissioned by the government. In April, the group forecast 2 percent growth for 2012.
Deutsche Bank AG on Oct. 4 scrapped its profit forecast and announced 500 job cuts and further writedowns on Greek bond holdings. Vossloh AG, a manufacturer of railroad equipment, cut its full-year sales forecast on Sept. 29, citing slower business in China and a “sharp reduction” in orders from southern Europe.
“Businesses have again scaled back their expectations and the inflow of new orders, especially from abroad, has lessened noticeably,” the Frankfurt-based Bundesbank said yesterday. Industrial companies will find it “difficult” to maintain output over the next six months amid weaker demand, it said.
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