German ZEW investor confidence gains as ECB stimulus approaches

[FRANKFURT] German investor confidence jumped to the highest level in 11 months in January as the European Central Bank prepares for quantitative easing.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, climbed to 48.4 from 34.9 in December. Economists had forecast an increase to 40, according to the median of 37 estimates in a Bloomberg News survey.

The reading comes two days before the ECB's Governing Council gathers to consider large-scale government-bond purchases as its biggest tool yet to avert euro-area deflation. Speculation over the plans has already helped push Germany's benchmark DAX Index to a record high and the euro to an 11-year low, and boosted fund flows that probably contributed to the Swiss National Bank's shock decision to end its currency cap.

"I'm quite optimistic about the German economy - domestic fundamentals are strong, and with the weaker euro and the good equity market, the outlook for exporters is better," said Aline Schuiling, senior economist at ABN Amro Bank NV in Amsterdam. "Part of this improvement is thanks to the anticipation of sovereign QE. Germany is already benefiting from it."

Economists in a Bloomberg survey predict ECB President Mario Draghi will announce a 550 billion euro (US$640 billion) bond-purchase program on Jan 22. The plan will largely focus on government bonds, with some other debt instruments included, the survey shows.

Falling Prices Any decision will come amid declining consumer prices. The euro area's inflation rate fell below zero in December for the first time in more than five years and is seen remaining negative for a substantial part of the year by ECB Chief Economist Peter Praet.

Germany's Bundesbank has been a chief opponent of adding stimulus at this time. It said yesterday that while the country's 2015 inflation outlook must be revised "significantly downward" because of the slump in oil prices, forecasts for economic growth this year and next could be revised upward.

"The German economy seems to have overcome the weak phase of early last year faster than many expected," the Frankfurt- based central bank said in its monthly report. "Markedly positive consumer sentiment, based on favorable employment and income prospects and supported by falling energy prices, contributed significantly to this." In December, the Bundesbank forecast economic growth of one per cent in 2015 and 1.6 per cent in 2016, with inflation averaging 1.1 per cent and 1.8 per cent, respectively.

BLOOMBERG