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Tuesday, August 19, 2008

ZEW Economic Sentiment Indicator Rebounds Slightly In August

German investor confidence increased more than anticipated in August following a decline in the euro and an easing in oil prices from the record levels reached in early July. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations rose to minus 55.5 from minus 63.9 in July. The July reading had been the lowest since the survey began in 1991.

The German economy contracted by a larger than expected 0.5% in Q2, and it is still touch and go whether we will see a technical recession and quarterly GDP in the third quarter too. The Berlin-based DIW economic institute predicted yesterday that gross domestic product would rise just 0.1 percent in the three months through September, and accepting this assessment at face value it is still within a margin of error which could mean contraction.

Inflation is also still proving to be a major area of concern, and German producer-price inflation accelerated to 8.9 percent in July, the fastest pace since October 1981, reinforcing speculation the European Central Bank will keep interest rates at a seven-year high even as the economy cools. Month on month prices rose 2 percent, according to data from the Federal Statistics Office earlier today.

German energy prices gained 25 percent from a year earlier and prices for electricity increased 23 percent. The cost of diesel fuel rose 30 percent from July 2007. Excluding energy, producer prices rose 3.6 percent in the year.

German consumer prices rose 3.5 percent in Julay from a year earlier, according to the Federal Statistics Office on August 14.That's the fastest pace since Germany started measuring inflation using a harmonized European Union method in 1996. From June, prices rose 0.7 percent.

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