Analysts were unprepared for a higher-than-predicted leap in German investor optimism in January, despite continued signs of downsizing in German industry.
German investors proved to be surprisingly optimistic in January
German investor confidence jumped unexpectedly in January, a key indicator released on Tuesday showed. It signals hope that signs of an economic recovery could emerge as the year unfolds.
The Mannheim-based Centre for European Economic Research reported that the ZEW index increased to minus 31.0 points this month, after already posting a bigger-than-forecast jump to minus 45.2 in December.
Analysts had predicted only a marginal improvement, forecasting that the indicator, which gauges sentiment six months in advance, would barely edge up to minus 44 points in January. The ZEW index bottomed out at minus 63 in October.
"The financial analysts share the optimism of recent economic forecasts, predicting that economic perspectives should improve from the mid of this year," said ZEW chief Wolfgang Franz.
Good news despite bad news
In fact, the latest positive ZEW survey results came despite fresh evidence of continuing turmoil in the global banking sector, rapid contraction in world economic growth and the release of grim new German economic data.
On Monday, the European Commission announced that Germany's economy will contract by 2.3 per cent this year and revised its 2009 growth outlook for the 16-member eurozone sharply downward.
Inspite of investor optimism, the auto industry in Germany is still slumping
Moreover, the release of the latest ZEW report coincided with fresh signs that the global economic slowdown was taking its toll on German business, with luxury carmaker BMW AG reducing working hours at key plants.
The giant retailer Metro AG also revealed it would cut 15,000 jobs over the next three years, while German truck maker MAN AG is halting production for 42 days.
Heavy industry stuck in doldrums
The world economic crisis is likely to result in Germany's key metal and engineering sector taking drastic measures this year, Martin Kannegiesser, the head of the metal industry employers' association warned on Tuesday.
"Some increase in unemployment is unlikely to be avoided," Kannegiesser said.
However, a new wave of economic stimulus packages announced by governments around the world, as well an on-going drive by central banks to cut rates, is apparently having a positive effect.
"It is clear that more and more analysts believe that Germany's catastrophic economic situation will not worsen further," said Commerzbank economist Ralph Solveen.
Last week German Chancellor Angela Merkel's grand-coalition government agreed to a new stimulus package aimed at pumping about 50 billion euros (64.89 billion US dollars) into the nation's economy over the next two years.
As the latest ZEW investor confidence survey highlighted, many economists and analysts believe that the first signs of an economic recovery in Germany and Europe could start to emerge during the second half of 2009, possibly leading to a further upswing in 2010.