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German investor cheer could hit growth buffers: analysts

Tuesday, October 11, 2016 - 19:12
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Sentiment among investors in Germany sharply improved this month from its post-Brexit doldrums, data showed Tuesday, but analysts warned against overconfidence.

[FRANKFURT] Sentiment among investors in Germany sharply improved this month from its post-Brexit doldrums, data showed Tuesday, but analysts warned against overconfidence.

The ZEW economic institute's headline investor confidence index hit 6.2 points in October, an increase of 5.7 points over September and beating the 4.0 points analysts surveyed by Factset had predicted.

Sentiment had hovered at low levels in August and September after a sharp dip in July following Britain's June 23 vote to quit the European Union.

Even with the October increase, the barometer remains well below its long-term average of 24.1 points.

The result was "very positive, and points to a thoroughly robust development of the business cycle," ZEW president Achim Wambach said in a statement.

But Mr Wambach warned of "a few political and economic risks" that could still weigh on the index, including "dangers for the German banking sector".

German and global investors have eyed Deutsche Bank, the country's biggest lender, with concern in recent weeks as it negotiates with the US Department of Justice over a US$14-billion fine demand.

But other banks in Europe's largest economy are struggling too, complaining of the crowded sector's intense competition and low interest rates set by the European Central Bank cutting into profits.

The latest ZEW reading follows a battery of positive indicators, including strong readings of exports, industrial orders, and industrial production in August and a resurgent business confidence index from the Munich-based Ifo institute in September.

That was reflected in an increase in the ZEW "current situation" sub-index to its highest level since January.

Analysts warned that expectations of the "golden autumn" pointed to by Ifo should be treated with care.

"The improvement in current economic activity may have raised expectations for future growth" among investors, Berenberg bank's Florian Hense said, but "expectations remain below the pre-Brexit vote averages."

"Easing fears about the effects of Brexit have more than offset concerns about the wider implications of Deutsche Bank's troubles," analyst Jennifer McKeown of Capital Economics said.

While "broadly encouraging... the index still points to a slowdown in German GDP growth" based on the ZEW's past relationship to economic activity, she added.

Beyond Germany, investors' expectations for the economies of eurozone neighbours also saw a positive turn, gaining 6.9 points to stand at 12.3.

ZEW questions analysts and institutional investors about their assessment of the current economic situation and the outlook for the coming months to compile its regular survey.

AFP