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Moderating fears of downturn spur rise in German investor confidence; PPI hits 27-year high

By MATT MOORE | AP Business Writer

8:17 AM EDT, August 19, 2008

BERLIN (AP) _ German investor confidence recovered in August from a 16-year low the month before, rising unexpectedly by 8.4 points as fears of an economic downturn in Europe's biggest economy appeared to ease, a key survey released Tuesday found.

The report, though, was offset by a government announcement that producer-price inflation in July was up 8.9 percent from last year, with price surges in natural gas, electricity and mineral oils pushing the figure to a point last seen in October 1981, when it was 9.1 percent, or a 27-year high.

Such an increase is certain to weigh on the European Central Bank, which has kept interest rates at their highest point — 4.25 percent — since 2001 amid slowing growth in the 15-country euro zone. The bank meets next month to decide whether to adjust its benchmark rate.

The Center for Economic Research's monthly index, which measures investors' expectations for Europe's largest economy over the next six months, rose to negative 55.5 points in August from negative 63.9 points in July, the Mannheim-based group said. Though the figure improved, it remained well below the historical average of 28.3 points.

The so-called ZEW index said that the improved sentiment among investors signaled that there was "only limited fear about an economic downturn among the financial market experts." It added that the recent declines in oil prices and a weaker euro helped to mitigate "concerns about the economic situation in Germany."

ZEW president Wolfgang Franz said the results showed that while investors are reckoning with a weaker growth outlook, they "rightly do not fear a recession."

In separate polls, the assessment of the current economic situation in Germany fell in August, dropping 26.2 points to negative 9.2 points.

The economic expectations for the euro zone also improved in August, too, rising by 8 points to minus 55.7 points from negative 63.7 points a month earlier. The indicator for the current economic situation in the euro zone dropped by 18.9 points and now stands at negative 22.2 points.

Despite the improvement, analysts warned that it was not a harbinger of an improved economic climate to come.

"The ZEW growth expectations increased from negative 63.9 to negative 55.5, as the nose-diving oil price and the plunging euro-U.S. dollar exchange rate have lifted economists' and asset managers' spirits," said Andreas Rees, an economist at UniCredit in Munich.

"However, the current situation component showed the biggest monthly drop ever. ... In other words, it has become crystal-clear that markedly slower growth lies ahead, as the negative momentum from the global economy is increasingly carrying over into Germany."

Rees said that while lower oil prices and a falling euro could dampen any slowdown, it "certainly cannot prevent it."

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