Bloomberg

by Christian Vits

German investor confidence dropped more than forecast to a 16-month low in August, suggesting economic growth will slow from the record-breaking pace set in the second quarter.

The Mannheim-based ZEW Center for European Economic Research said its index of investor and analyst expectations, which aims to predict developments six months ahead, fell to 14 from 21.2 in July, its fourth straight decline. Economists had forecast a drop to 20, according to the median of 33 estimates in a Bloomberg News survey.

While Germany’s economy grew at the fastest pace in two decades in the three months through June, the recovery is being driven by exports and there are signs demand will wane. Factory orders in the U.S., the world’s biggest economy, fell more than economists forecast in June, while China’s manufacturing grew at the slowest pace in 17 months in July. European governments are also cutting spending to rein in ballooning budget deficits, threatening to slow growth across the 16-nation euro region, Germany’s biggest export market.

ZEW’s report is “by no means as bad as it seems,” said Ken Wattret, chief euro-area economist at BNP Paribas SA in London. “The current assessment rocketed up, meaning the economy is doing really well and everyone expects that it’s going to be cooling toward the end of the year.”

Record Second Quarter

ZEW’s gauge of current conditions jumped to 44.3, the highest since January 2008, from 14.6 in July. The euro initially fell a quarter of a cent before rebounding to $1.2902 at 11:16 a.m. in Frankfurt.

ZEW said a third of the responses to its survey came in after the Federal Statistics Office reported on Aug. 13 that gross domestic product rose 2.2 percent in the second quarter from the first, the fastest growth since records for a reunified Germany began in 1991.

The data suggest the economy, which contracted 4.7 percent last year, will grow “far more than 2 percent in 2010,” Economy Minister Rainer Bruederle said after the report. UniCredit raised its 2010 growth forecast to 3.5 percent from 2 percent.

“German GDP should post a very healthy expansion of at least 3 percent this year thanks to a surge in exports,” said Jennifer McKeown, an economist at Capital Economics Ltd. in London. “But as global demand growth slows further and consumers remain reluctant to spend, the recovery is likely to be fairly short-lived.”

‘A Little Nervous’

The benchmark DAX share index has dropped 3 percent in the last week, paring its gain for the year to 3 percent.

“The second quarter has run very well,” said Uwe Bechtolf, executive vice president finance at Messer Group GmbH, a German maker of industrial gases. “Now people are getting a little nervous that it can’t go the same way the next months.”

German Chancellor Angela Merkel’s Cabinet in June approved levies on banks, air travel and nuclear-power plants as part of what she called an “unprecedented” round of budget cuts, rejecting U.S. calls to spur growth. The program, a mixture of spending cuts and revenue-raising steps, amounts to 81.6 billion euros ($104.9 billion) from 2011 through 2014.

Bayerische Motoren Werke AG, the world’s largest luxury carmaker, Volkswagen AG’s Audi unit and Daimler AG are countering weakening sales at home by selling more cars in China. Audi sold 53 percent more cars in China in July compared with a year earlier, while Daimler, the world’s second-largest luxury-car maker, tripled sales of its Mercedes-Benz brand, and BMW raised deliveries 82 percent, the companies said this month.

“In western Europe, austerity programs and the persistent challenges that banks and the financial industry are facing will only allow for little economic growth,” Volkswagen, Europe’s largest carmaker, said in its quarterly report yesterday. “Exports will remain the engine for growth while domestic demand, especially private consumption, will revive only slightly.”

http://www.bloomberg.com/news/2010-08-17/german-august-investor-optimism-slumps-more-than-forecast-to-16-month-low.html