January 17, 2012 / 10:50 AM / 8 years ago

UPDATE 2-German ZEW index shows record jump in January

* Largest single monthly rise since survey began
    * ECB action and upbeat data cited as main drivers
    * Greece, euro zone still main risks for German GDP


    By Sakari Suoninen and Kirsti Knolle	
    MANNHEIM, Germany, Jan 17 (Reuters) - German analyst
and investor sentiment posted a record rise in January, data
showed, hinting at a turning point for Europe's largest economy
after a small contraction late last year. 	
    The Mannheim-based ZEW economic think tank partly attributed
the surge in its headline monthly economic sentiment index to
optimism over the policy response to the European debt crisis.	
    Germany has shown more resilience to troubles elsewhere in
the euro zone, after fiscal prudence, steady demand for its
high-quality products, and high competitiveness helped it
weather a tough global environment.	
    Robust economic growth enabled it to more than halve its
initial planned new borrowing in 2011 and take the moral high
ground in urging ailing euro zone peers to save and consolidate,
after busting euro zone deficit rules itself in 2010.	
    The ZEW report was the latest in a handful to paint a
brighter picture of the economy. The index rose to -21.6 from
-53.8 in December, the largest single monthly increase since the
survey started in 1991, driving the euro to a session
high versus the dollar.	
    "(It's) generally a good indicator of an economic turning
point," said Andreas Scheuerle from Dekabank. "With a certain
delay, we could expect an end of the phase of economic weakness
in Germany."	
    Germany's export-driven economy recovered quickly from the  
2008/09 financial crisis, but began to feel the pinch late last
year as the Greek debt crisis spread to its trading partners.	
    Gross domestic product shrank by around 0.25 percent in the
last three months of 2011, the Statistics Office said last week,
after the economy outperformed peers for the main part of the
year thanks to strong domestic demand and exports.	
    But overall, GDP grew 3 percent last year -- a level ZEW
considers robust and a reason for optimism especially as growth
is gaining increasing support from consumption.	
    German companies have also fared reasonably well. Carmaker
Volkswagen bucked a declining market trend with sales up 9
percent in December in contrast to slumping sales at French
carmarkers PSA Peugeot Citroen and Renault. 	
         	
    ECB SUPPORT	
    The ZEW figures blew past the consensus forecast given in a
Reuters poll of analysts last week, which had expected a rise to
-50.0. A separate sub-index measuring current conditions rose to
28.4 from 26.8, beating a forecast for 24.0.	
    ZEW economist Michael Schroeder said the rise was driven by
upbeat economic data as well as the European Central Bank's
massive injection of cash on the markets last month, which has
left banks awash with money.	
    "It seems that the worst of the euro zone crisis might be
over due to the reaction of the central bank and the rescue
mechanism," he said.	
    To help fight the euro zone crisis, the ECB provided banks
in December with nearly half a trillion euros of cheap 3-year
loans, which it says is helping banks and supporting morale
across the euro zone.	
    Economists agreed this was boosting sentiment, even though
banks have been hesitant to lend all the fresh money and are
parking it in overnight facilities at the ECB at record levels.	
    "Diminishing tensions in the sovereign bond markets of
crisis-hit countries since the 489 billion euro 3-year auction
of the ECB have led to a period of calm on financial markets,"
said Christian Schulz from Berenberg.	
    Most analysts expect Germany to be able to rebound swiftly
from weakness in the winter months as employment levels remain
high and paltry interest rates persuade consumers to spend
rather than save.	
    Joblessness fell in December to its lowest level since
reunification two decades ago, while an index covering the
services industries showed new orders and jobs growth helped the
private sector to expand.    	
    However Germany remains heavily dependent on trade with its
struggling European trading partners, accounting for more than a
quarter of GDP. 	
    Many economists have cut their 2012 growth forecasts
accordingly. The Bundesbank expects growth of 0.6 percent this
year, less than the government's official forecast of 1.0
percent, while think tank IMK has even predicted a mild
recession.	
    The ZEW survey of 293 analysts and investors was mainly
collected before ratings agency Standard and Poor's downgraded
some euro zone member states and negotiations between
cash-strapped Greece and its creditors hit an impasse.       	
    "The euro-zone debt crisis is unlikely to leave Germany
unscathed," said Ben May, from Capital Economics. "In all then,
the latest ZEW reading does not alter our view that Germany will
fall back into recession."
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