Investor sentiment soars

German financial market confidence surged this month as investors welcomed strong industrial orders, low interest rates and positive US data, the ZEW research institute said Tuesday.

Investor sentiment soars
Photo: DPA

The group’s index soared to 15.4 points from 4.3 points in December, its highest level since July 2010 as the biggest economy in Europe geared up for more growth in 2011.

Analysts polled by Dow Jones Newswires had expected the volatile German indicator to reach 8.0 points, and the new level remained below the historical average of 26.8 points. But it was the third increase running after six declines, leading economists to conclude the economy will remain relatively strong this year.

On Friday, the Ifo index will flesh out a clearer picture of German business sentiment but at least the financial sector was upbeat as the ongoing eurozone debt saga played on with a meeting of finance ministers in Brussels.

They signalled readiness to bump up a euro emergency fund but stressed that vulnerable countries must first put their finances in order.

The ZEW indicator meanwhile, based on a survey of 284 analysts and institutional investors, suggested that “financial market experts expect the dynamic growth of the German economy to continue,” a statement said.

“This development is backed by current data on incoming orders in the German industry,” it added.

German industrial orders posted a surprise 5.2 percent monthly gain in November, indicating solid business activity ahead.

ZEW president Wolfgang Franz also highlighted current low interest rate levels that should boost demand for German goods and said positive data from the US had raised hopes that global growth would continue.

German growth should get an additional boost from increased job security, which typically stimulates household consumption, Franz added.

Meanwhile, investors’ assessments of their current situation changed little but nonetheless gained 0.2 points to an indexed 82.8 points, the highest level since August 2007.

ING senior economist Carsten Brzeski said: “It looks as if there is almost blind trust in the strength of the German recovery.”

Berenberg Bank chief economist Holger Schmieding added that the third consecutive increase in the ZEW index “supports our view that the German economy will stay reasonably robust in 2011.”

Commerzbank’s Ulrike Rondorf concurred, saying: “The camp of optimists believing in an improvement has widened.”


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German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.


With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.