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German Investor Confidence Fell for Second Month in February as Euro RoseFeb. 17 (Bloomberg) -- Investor confidence in Germany, Europe's largest economy, fell for a second month in February as the euro's appreciation threatened an export-led recovery, the ZEW institute said. The Mannheim-based economic institute's index measuring German institutional investor and analyst sentiment declined to 69.9 from 72.9 in January. Economists surveyed by Bloomberg News expected a reading of 72, according to the median of 31 forecasts. The index touched a 42-month high in December. The euro's 18 percent increase against the dollar since September is hampering the ability of companies including Volkswagen AG and ThyssenKrupp AG to benefit fully from global growth, clouding the prospects for a recovery in Germany and across Europe. Growth in the euro region's economy slowed to 0.3 percent in the fourth quarter from 0.4 percent in the third. ``The euro's continuing drag on exporters is putting a brake on the recovery,'' said Carsten Klude, head of strategy at Hamburg- based M.M. Warburg, which manages the equivalent of about $19 billion. ``It's taking time for the global recovery to spill over to Germany, but it will happen eventually.'' The euro rose to as high as $1.2877 today after the report, close to the $1.2899 it reached on Jan. 12, which was the most since the currency's introduction five years ago. The Ifo institute said yesterday a further climb in the euro would pose a ``major obstacle'' to an export-led recovery in Europe. ECB Says Rates `Appropriate' Even with the euro close to a record high, European central bankers are steering clear of policy measures such as currency sales and interest-rate cuts to stem the euro's advance. European Central Bank President Jean-Claude Trichet yesterday said interest rates are ``appropriate'' and that economic growth in the U.S. and Asia is helping to offset the damage done to exporters by the euro's gains. Business optimism in Germany rose to a three-year high in January. The DIHK industry association said today its survey of more than 25,000 companies showed the recovery is spreading from exporters to their suppliers, prompting executives to boost hiring and investment plans this year. Growth in Germany, which accounts for about a third of the euro region's economy, helped European manufacturing increase the most in three years in January. The Dow Jones Euro Stoxx 50 Index has gained 11 percent since the start of September. `Headwind' ``Foreign orders have so far remained strong because the world economy is running well,'' said Christoph Hausen, a senior economist at Gothaer Asset Management AG, which oversees the equivalent of $20.5 billion. ``The rising euro means some headwind for German producers.'' Volkswagen AG, Europe's largest carmaker, tomorrow may say earnings slumped 70 percent in the fourth quarter, partly as the strength of the euro against the dollar eroded profit, according to the median forecast of 12 analysts surveyed by Bloomberg News. ``It seems that the euro's persistent strength is gradually starting to worry experts because over the longer term it may weigh on corporate earnings,'' ZEW said in its report. The Mannheim-based institute surveyed 308 investors and analysts. ZEW says its findings are a month ahead of the business- expectations index compiled by the Munich-based Ifo institute. Ifo's February report, one of Europe's most widely watched economic indicators, is due for release on Feb. 24. Growth in Germany will probably lag the performance of the world's biggest economies. While the government expects growth of between 1.5 percent and 2 percent this year, Federal Reserve Chairman Alan Greenspan said last week the U.S. economy may expand as much as 5 percent. That would be the strongest pace since 1984. Standard Chartered Bank forecast last week that China's economy will grow 7.7 percent in 2004. Schroeder's Woes ZEW also said some investors are concerned that Chancellor Gerhard Schroeder's resignation as chairman of the governing Social Democratic Party this month may sap the administration's willingness to propose further measures to revive economic growth. The SPD's popularity plunged to the lowest since Schroeder came to power in 1998 last month, the Forsa polling company said, after the government introduced laws making firings easier and changes to the country's health-care system. ``Experts are concerned that the necessary reforms are being put in question again,'' ZEW said in its report.
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