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Buoyant German investor morale brightens economic outlook for 2017

Reuters

BERLIN (Reuters) - The mood among German analysts and investors improved slightly in January, with rising expectations "a leap of faith for 2017" after a stronger-than-expected economic performance by Germany last year, the ZEW economic institute said on Tuesday.

Mannheim-based ZEW said its monthly economic sentiment index in January rose to 16.6 points from 13.8 points the previous month. The Reuters consensus forecast was for a rise to 18.3.

A separate gauge measuring investors' assessment of the economy's current conditions rose to 77.3 points from 63.5 in December. This compared with the Reuters consensus forecast, which predicted a rise to 65.0.

"The slight increase of the ZEW indicator of economic sentiment is mainly due to the improved economic situation across European countries," ZEW President Achim Wambach said.

"The fairly good preliminary figures recorded for the development of German GDP last year, as well as for industrial production of the euro zone in November 2016 came as a surprise to many. This improvement in expectations can thus also be seen as a leap of faith for 2017," he added.

Euro zone industrial output increased by a much higher-than-expected 1.5 percent in November and the German economy grew by 1.9 percent in 2016 - the fastest pace in five years.

Low interest rates and a record influx of refugees fueled German household and state spending in 2016, helping to compensate for weakening exports, long the pillar of an economy where manufacturing makes up about a fourth of output.

While the ZEW numbers missed expectations, the overall direction was seen by analysts as positive. ING, for example, noted that "the ZEW has been one of the most pessimistic indicators of German activity over recent months".

The growth momentum in Germany is expected to continue this year as rising private and state spending help Germany cement its position as the locomotive of the euro zone.

"Against the background of a global brightening in sentiment there is great hope that the German export economy can regain its dynamism," said Thomas Gitzel at VP Bank.

"Economic forecasts were generally reserved for 2017. Quite possibly, there will have to be a lot of corrections now and upward revisions made," he added.

Analysts polled by Reuters expect economic growth to slow to 1.4 percent in 2017 and 1.5 percent in 2018.

However, a "golden decade" of growth and prosperity in Germany risks fading if the government fails to heed calls to increase investment and pursue structural reforms that lay the foundations for a new phase of economic expansion.

(Writing by Paul Carrel; Editing by Michelle Martin and Erik Kirschbaum/Jeremy Gaunt)

 

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