Investor confidence shaken by Japan, Middle East unrest

The devastating earthquake and nuclear crisis in Japan, as well as the ongoing crisis in Libya, have hit German investor confidence, the closely-watched ZEW index showed Tuesday.

Investor confidence shaken by Japan, Middle East unrest
Photo: DPA

The monthly survey of investors in Europe’s top economy fell 6.5 points to 7.6 points in April. This was worse than analysts polled by Dow Jones had expected. They forecast a reading of 10 points.

“Two factors may have contributed to this decline. On the one hand, the current boom doesn’t leave much room for a further improvement of the current economic situation,” said the institute in a statement.

“On the other hand, experts are more and more aware of the risks for the world economy resulting from the events in Japan and in the Arab world,” the ZEW added.

The index is now some way below its historical average of 26.6 points.

The economic institute’s president, Wolfgang Franz, said that rising oil prices could force the European Central Bank to increase interest rates further, which might in turn further dampen sentiment.

“Despite the positive economic development, considerable risks may result from increasing commodity prices,” Franz told news agency AFP.

“These price increases could lead to second-round effects that could then force the European Central Bank to adopt a more restrictive monetary policy,” the president added.

On Thursday, the European Central Bank raised interest rates from record lows for the first time since mid-2008, as concerns about inflation outweighed worries over the ongoing eurozone debt crisis.

Nevertheless, the central bank’s president, Jean-Claude Trichet, allayed fears that the bank was about to embark on a rate hiking cycle, saying only it would do whatever was necessary to keep rising prices in check.

Carsten Brzeski from ING Bank said global political events were not about to derail Germany’s sparkling economic recovery.

“A very strong first quarter looks a certainty,” he said. “However, the geopolitical tensions in the Middle East and North Africa, and the disastrous events in Japan have cast doubt on the sustainability of the German recovery.”

“So far, these doubts remain unjustified,” he added. “At least in the eyes of market analysts and investors, the German economy seems to be panic-proof.”

Supporting his view, the markets took the ZEW index broadly in their stride Tuesday, with the euro unmoved against the dollar as the figures came out.

But another economist, Heinrich Bayer from Postbank, said the fall in the index was “at the least a warning shot that the economic environment in Germany could be a little rougher in the second half of the year.”

The survey came as the German government prepares to revise up its growth forecast for this year from the current level of 2.3 percent. Economy Minister Rainer Brüderle has already indicated output will be stronger than expected.

On Monday, the International Monetary Fund raised its projection for this year to 2.5 percent.

But natural disasters, geopolitical uncertainty and the spectre of higher borrowing costs have hit business confidence.

This was reinforced when the Ifo indicator of business confidence fell last month for the first time since May 2010.


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Merkel says ‘still time’ to find Brexit solution

There is still time to find a solution to Britain's exit from the EU, German Chancellor Angela Merkel said Tuesday, voicing optimism on a political deal over the tricky "backstop" that has stymied progress.

Merkel says 'still time' to find Brexit solution
Merkel speaking to Japanese students at Keio University on Tuesday. Photo: DPA

Speaking to Japanese and German business leaders in Tokyo, Merkel stressed that “on the one hand, time is pressing” and businesses using “just-in-time” delivery processes could not afford lengthy customs procedures.

However, she added: “From a political point of view, there is still time. Two months is not a long time but there is still time, and this should be used by all sides.”

SEE ALSO: 'We must do everything to avoid a no-deal Brexit': Merkel

SEE ALSO: Merkel spokesman says reopening Brexit deal 'not on agenda'

Britain is poised to leave the EU at the end of March following a 2016 referendum.

Merkel acknowledged the issue of the unpopular Northern Ireland backstop 
provision was “complicating” Brexit talks.

The backstop is intended to ensure there is no return to a hard border with 
Ireland, but Brexit supporters fear it will keep Britain tied to EU customs rules.

She said the issue with the backstop was a “problem that is precisely defined and therefore one should be able to find a precisely defined solution”.

SEE ALSO: How to swap your German driving license for a British one

“But this solution depends on the question of what the future relationship 
between Britain and the EU will be like and what type of trade deal we sign 
with each other,” added the chancellor.

Throwing the ball into London's court, she stressed: “It will be very important for us to know what exactly the British side sees as its future 
relationship with the EU.”

After meeting Japanese counterpart Shinzo Abe Monday, she urged “creativity” and “goodwill” to find a solution. 

However, she was clear that any solution could only come via the political 
declaration attached to the withdrawal agreement — rather than re-opening 
talks on the actual exit deal.

There are concerns in London that any tweaks to the political declaration  will not be legally binding.

Her Monday comments were seen as conciliatory and boosted the pound as British Prime Minister Theresa May prepares to engage in further talks with EU officials to break the Brexit deadlock as the exit date approaches.

A top EU official, however, sounded the alarm bell after talks with British 

Martin Selmayr, the right-hand man of European Commission President 
Jean-Claude Juncker, said the meeting had confirmed the view that the EU was right to start in December 2017 preparations for a “no-deal” Brexit.

Merkel said relations between Britain and the EU bloc were currently strong and would remain that way. 

“Over the last two years during which we have been dealing with Britain's 
exit, we have worked more closely together than during several years when Britain was a member of the European Union,” she quipped to laughter.