–Adds Comments From ZEW Expert On Recession Risks, EMU Prospects

Germany Expectations Current Conditions
————————————————————-
February +5.4 +40.3

MNI survey median: -13.8 +30.3
MNI survey range: -20.5 to 0.0 +29.0 to +35.0

January -21.6 +28.4
—

FRANKFURT (MNI) – Investors’ outlook for the German economy
brightened more than expected in February, as did their assessment of
current conditions, the ZEW Centre for European Economic Research said
Tuesday.

After two months of recovery, the ZEW’s economic sentiment
indicator jumped 27 points to a ten-month high of +5.4, the first
positive reading since last May.

The recovery was driven both by improved economic outlook and
easing Eurozone tensions, ZEW said.

“From the perspective of the financial market experts there is a
good chance that the German economy will experience a slight uplift in
the second half of 2012,” commented ZEW President Wolfgang Franz.

“Since consumers do not have to fear for their jobs due to the low
unemployment rate, domestic demand will continue to support economic
growth. Still, the solution of the crisis in the Eurozone remains an
important task,” he added.

Analysts were also more upbeat about current conditions in Germany,
as their assessment rose 11.9 points to +40.3.

While recent data suggest that the German economy – the motor of
the Eurozone – was unable to escape the global slowdown unscathed,
financial market experts see a good chance that the activity will regain
traction in the second half of year, ZEW said.

“The probability of a recession in Germany is very low,” said ZEW
expert Marcus Kappler, noting that only one in five analysts now expects
a slump. Even those who do foresee a recession do not expect a
pronounced contraction, but rather a technical recession of two
quarters of mildly negative growth, he added.

Last month’s Ifo survey also showed six-month business expectations
brightening “considerably”, with the export outlook reaching a
five-month high. Manufacturers polled for the January PMI reported
further declines in inventories, which should support industrial output
over time.

With unemployment and jobless fears still trending downward,
borrowing costs low and inflation slowing, household spending could also
underpin growth this year. A GfK survey showed a further increase in
consumers’ willingness to spend in January. A European Commission study
showed an above-average proportion of Germans looking to make major
purchases over the next 12 months.

Firms polled recently by the Chamber of Industry and Trade (DIHK)
were “cautiously optimistic” for this year, with growth expected to turn
positive in 1Q, the DIHK said, forecasting full-year GDP growth of 1.0%.

Bundesbank President Jens Weidmann stressed last month that
fundamentals showed the German economy “in good health” thanks to its
high competitiveness, low unemployment and the solid financial situation
of most firms.

While export dynamics may wane, a second pillar is gaining solidity
as domestic motors of growth — business investment, home construction
and private consumption, Weidmann added.

For the Eurozone as a whole, the ZEW’s economic sentiment index
also improved for the third month in a row, rising 24.4 points to -8.1.
The current conditions index was up 2.7 points to -49.1.

Progress in the negotiations of the Greek government with its
creditors may have reduced economic uncertainty in the Eurozone, ZEW
suggested. Moreover, “positive economic data from the United States
nourish hope for a more stable global business climate.”

“The crisis in the Eurozone looks less scary than three months ago”
after the progress made on Eurozone governance reform, austerity
measures and the second Greek bailout, Kappler said.

— Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com —

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