German investor confidence index rises for 3rd month, another sign economy may avoid recession

FRANKFURT – Investor optimism about the German economy rose in February, according to a closely watched survey, raising hopes that the country may avoid a recession.

The ZEW institute’s index, released Tuesday, rose to 48.2 points from 31.5 in January. It was the third monthly increase in a row and above the 36 points expected by market analysts. The institute asked 272 investment industry analysts between Feb. 4 and Feb. 18 how they thought the economy would perform in the next six months.

Germany’s economy shrank 0.6 per cent in the fourth quarter, and another drop in the first three months of this year would put it in a recession, commonly defined as two consecutive quarters of economic contraction. But many economists think the dip was only temporary and that the economy will quickly return to growth.

Fears have waned in recent months that a heavily indebted European country, such as Spain or Italy, would have trouble paying its debts — a situation that would have roiled financial markets and Europe. Nonetheless, the economy of the bloc of 17 European Union countries that use the euro is stuck in a recession and the European Central Bank expects it to shrink 0.3 per cent for the year as a whole. A stronger German economy could help the eurozone on its expected path to recovery later in the year.

ZEW President Wolfgang Franz said the surveyed investors believe “the German economy faces less headwinds from the euro crisis than throughout the last months.

“If this situation remains unchanged during the next months, German business activity may pick up speed moderately,” he said in a statement.

Jennifer McKeown, an economist at Capital Economics, said the survey result “adds to the positive signs for the economy in the early part of this year” but cautioned that the ZEW has not been as good a predictor of growth as business surveys such as the Ifo index, which comes out Friday. She said that the fourth quarter had been a “weak starting point,” so it was not surprising that investors now seen things improving.

Others noted that hard data on how the economy is actually performing — as opposed to “soft indicators”, such as surveys about expectations — are still lacking.

“Even if the real economy only lives up to half the expectations recently created by soft indicators, any fears of a technical recession should turn out to have been unjustified,” said Carsten Brzeski, an analyst with ING.