German investor confidence increased to the highest in 2 1/2 years in January, adding to signs that Europe’s largest economy may gather momentum.
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, jumped to 31.5 from 6.9 in December. That’s the highest since May 2010 and the biggest gain in 11 months. Economists forecast an increase to 12, according to the median of 39 estimates in a recent survey.
While Germany’s statistics office estimates the economy may have shrunk as much as 0.5% in the final quarter of 2012, the Bundesbank said yesterday there are indications that a recovery has already begun. Business confidence rose for a second month in December and the country’s service industries returned to growth. The European Central Bank predicts that the euro-area economy will exit its recession later this year.
ZEW’s gauge of the current situation rose to 7.1 from 5.7 in December. Economists forecast a gain to 6.2, according to the median of 24 predictions in a recent survey.
Other European economies are still struggling to regain strength. Britain’s budget shortfall excluding government support for banks widened to 15.4 billion pounds ($24.4 billion U.S.) in December from 14.8 billion pounds a year earlier, the Office for National Statistics in London said today. A U.K. factory index unexpectedly fell this month as export demand weakened, a separate report showed today.
Data on Jan. 25 will show U.K. gross domestic product fell 0.1% in the fourth quarter after the economy resumed expansion in the third, according to a Bloomberg News survey. Economists define a recession as two quarters of declining economic output and a contraction in the fourth and first quarters would be the third slump since GDP reached its peak before the financial crisis.
For his part, European Central Bank President Mario Draghi, who will hold a speech in Frankfurt tonight before attending the World Economic Forum in Davos later this week, has signaled confidence in the economic outlook. He said on Jan. 10 that while "persistent uncertainty" will continue to weigh on growth, the 17-member euro region should show a "gradual recovery" this year.
German economic expansion slowed to 0.7% in 2012 from 3% in 2011, the Federal Statistics Office said last week. The Bundesbank based in Frankfurt predicts expansion of just 0.4% this year.
