German investor sentiment hits 4-year high

Investment sentiment in Germany rose in November to its highest level in four years, suggesting that the eurozone's economic recovery is on track, a new survey found on Tuesday. The widely watched investor confidence index calculated by the ZEW economic institute gained 1.8 points to 54.6 points in November, its highest level since October 2009. "For months now, economic expectations in Germany have been at a high level. The slight improvement in the eurozone economy will have contributed to this," said ZEW president Clemens Fuest. For the survey, ZEW questions analysts and institutional investors about their current assessment of the economic situation in Germany, as well as their expectations for the coming months. The sub-index measuring financial market players' view of the current economic situation in Germany eased by 1.0 points to 28.7 points in November. A frequent criticism of the ZEW index is that it can be volatile and is therefore not particularly reliable. ZEW also calculates an investor sentiment index for the entire euro area and that reached its highest level since 2006. "The eurozone recovery remains on track," said Berenberg Bank economist Rob Wood. "Confidence has recovered back above where it was before the Greek crisis. Germany is leading the way, with the strongest current conditions among the countries covered by the survey." The ZEW barometer "supports the view that the third-quarter growth slowdown in the eurozone was probably a blip," Wood said. Capital Economics economist Jonathan Loynes said that ZEW's reading for Germany alone "provided some evidence that the eurozone's biggest economy has continued to expand in the fourth quarter, but at a relatively moderate pace." However, "as a fairly erratic gauge of sentiment amongst German investors, the expectations index has never been a particularly good indicator of the broader economy," Loynes cautioned. "The overall message appears to be that, while the German (and the eurozone) economies continue to grow, they do not appear to be accelerating to the sort of pace which might start to have a beneficial impact on the beleaguered peripheral countries," the expert said. ING DiBa economist Carsten Brzeski also believed that the ZEW index "does not have the best track record when it comes to predicting German economic activity". However, the German economy is continuing to benefit from low interest rates, the strong labour market, solid domestic demand and the improved outlook for external demand. "As a consequence, the German economy should cruise along rather smoothly to the end of the year," Brzeski said. For Natixis economist Johannes Gareis, the latest ZEW reading was "a sign that the recession in the eurozone is slowly bottoming out". However, "all that glitters is not gold. The decrease of the current-situation component came as a bit of surprise and may indicate that investors are somewhat concerned about the shape of the eurozone economy in response to the ECB?s surprise interest-rate cut at the beginning of November," Gareis cautioned.