ZEW Investor Confidence Improves Slightly In September

German investor confidence rose for the second month running in September after a decline in oil prices and a weaker euro improved expectations for greater export competitiveness. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations rose to minus 41.1 from minus 55.5 in August. This was the highest reading since April.



The price of oil has now dropped almost 40 percent from its July peak and the euro has lost 8 percent against the dollar in the past three months, providing relief to consumers and exporters. It is possible that the support from the US Treasury for FannieMae and FreddieMac may have offered the hope that the worst of the US financial sectors woes were no behind us.

Unfortunately the recent unwinding of Lehman Brothers offers a warning that such a view may be still premature. So while it is likely that the price of oil may continue to fall, the real economy effects of the most recent bout of financial turmoil and its impact on the equity markets are yet to really be felt, so all in all it would not be very suprising to see confidence drop back again in October.

German Industrial Output Falls In July

German industrial production fell quite sharply in July, for the fourth time in five months, led by a drop in demand for investment goods such as machinery. Industrial output was a seasonally adjusted 1.8 percent from June, when it rose 0.1 percent, according to data from the German Economy Ministry earlier in the week. From a year earlier, production adjusted for working days fell 0.6 percent.



The German economy, which is Europe's largest, is showing few signs of recovery after contracting in the second quarter. Factory orders fell in July, manufacturing shrank last month and business confidence declined to a three-year low. The seasonally adjusted volume index (see chart below) hit a peak in February, and has been declining virtually non-stop since.




If we look at construction (see chart below) we see a similar picture with output peaking in February, although in this case, apart from the short spike at the turn of the year, the decline is longer term, and German construction activity really hasn't recovered the momentum it obtained in the winter of 2006/07.




Output of investment goods declined 3.7 percent month on month in July, while construction production fell 2 percent. The output of consumer goods dropped 1.7 percent, with production of durable goods falling 6.5 percent. Also German factory orders fell in July, extending their longest ever streak of decline. The VDMA manufacturers association said last week that plant and machine orders dropped for a third straight month in July, led by sliding demand.

German Exports Fall Back In July, Imports Surge

German exports declined more than expected in July as the slowdown in Europe's other economies curbed demand for German products. Sales abroad, when adjusted for working days and seasonal factors, fell 1.7 percent from June, according to data out today from the Federal Statistics Office. Year on year, exports rose 7 percent, but imports rose 7.4% from June and were up by an annual 15.7% - remember, July was the month of record oil prices - and hence the net effect of trade on GDP in July will be significantly reduced.



German exporters are grappling with a slowdown in the economies of their main trading partners. Europe's gross domestic product shrank 0.2 percent in the second quarter and may not recover in the third, raising the risk of the first zone-wide recession since EMU was launched in 1999. Exports to the all important eurozone - which totalled 35.9 billion euros - were up 4.1% on the year. While oil prices have now fall 28 percent from the July record, they're still up almost 40 percent over the past year, although if the downward movement continues we may well see year on year negative movements in oil prices in two months or so.



As a result of the surge in imports the trade surplus narrowed to 13.9 billion euros ($20 billion) from 19.9 billion euros in June. The surplus in the current account, the measure of all exports including services, also narrowed - to 11.8 billion euros from 18.9 billion euros in June.


German factory orders continued to fall in July, extending their longest-ever declining streak and offering yet another indication that the economy may well be heading for a recession. The VDMA employers association said that plant and machine orders dropped for a third straight month in July, led by sliding foreign demand.

German business confidence declined to a three-year low last month and consumer optimism fell to the lowest level in five years.