FRANKFURT (AFX) - A modest rise in the ZEW economic expectations index in December suggests the German economy will continue to grow in the coming months but at a sluggish pace, economists said
They said the ZEW, which reflects the expectations of analysts and institutional investors, has done nothing to dispel concerns that the soaring euro poses a serious problem for euro zone growth outlook
"The rise in the German expectations index is welcome, but it is far too small to change our economic assessment or our European Central Bank outlook," said Holger Schmieding at Bank of America. "It does not suffice in any way to take the pressure off the ECB to do something about the surging euro." The ZEW research institute said its German economic expectations index for December rose 0.5 points to +14.4 from +13.9 in November -- its first rise in five months. The consensus forecast of economists polled by AFX News was for a drop in the index to +11.0
But ZEW said the index remains well below its long-term mean of +34.5
It said concerns over the continued decline in the value of the US dollar, which could endanger the competitiveness of German exports, were roughly counterbalanced by the recent drop in the price of oil
Schmieding said the index, which usually leads economic output by about six months, suggests that German GDP growth will be well below trend this winter. "At the margin, the slight gain in the ZEW now could support our forecast that consumer spending and economic growth will gain a little momentum again next spring on the back of lower oil prices," he said
UBS economist Holger Fahrinkrug said the ZEW's stabilisation at a low level "is consistent with our forecast of a temporary growth slowdown between now and the middle of next year"
Sylvain Broyer, economist at IXIS, also said that the small rebound in December after four consecutive monthly falls indicates German growth will decelerate over the next six months, but will not become negative
"This remains consistent with our scenario for Germany, which bets on an air pocket until the second half of 2005 as a consequence of the high Brent price and a late recovery of internal demand via productivity investment," Broyer said. "However, after a weak third quarter, German growth could be only 1.2 pct in 2004 and 2005," he said
German GDP grew just 0.1 pct in the third quarter from the second quarter
Schmieding said that with the euro surging to a fresh high of 1.3469 today, the ECB will not be able to raise interest rates to head off looming inflation because this would jeopardise the fragile economic recovery
"We expect the ECB to be on hold until September 2005, with a chance of 25 pct (and rising) that the super euro may force the ECB to cut rates in March or April 2005 instead," he said
ZEW rise suggests German economy to continue to grow
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07-12-2004 08:09
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