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December 16, 2009

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German investor confidence dips despite recovery

GERMAN investor confidence dipped for a third straight month in December amid expectations that Europe's biggest economy will recover only slowly from recession, a closely watched survey found yesterday.

The ZEW institute's confidence index, which measures investors' outlook for the next six months, slipped to 50.4 points this month from 51.1 in November.

Despite the modest decline, ZEW said the index remains well above the historical average of 27 points, even though it has slipped back since hitting a three-and-a-half-year high of 57.7 points in September.

Financial experts polled for the survey still expect a recovery, albeit a slow one, ZEW said. Though exports are rebounding, unemployment is expected to rise in the coming months and keep a lid on consumption.

"We are still at the bottom of a recession," said the institute's head, Wolfgang Franz. "Next year, we will see a recovery, but not an economic upswing. The recovery is mainly driven by exports."

Another important factor will be how much banks lend while continuing to clean up their balance sheets, Franz said.

December's overall reading was slightly better than economists' expectations of a drop to 50.

ZEW said a subindex measuring investors' assessment of the current situation rose strongly this month, climbing 5 points to minus 60.6.

That still-subdued reading shows that "we are currently climbing up from very low levels" and pre-crisis levels won't be reached soon, said Alexander Koch, an economist at UniCredit in Munich.

The third consecutive drop in the overall index suggests that "the current initial very solid revival in economic activity ... can not be upheld throughout next year," he said.

The German economy, Europe's biggest, emerged from recession in this year's second quarter, growing by 0.4 percent. Growth accelerated to 0.7 percent in the third quarter.

Another leading German economic think tank, the Ifo institute, estimated that the economy will grow by 0.5 percent in the current quarter. It predicted annual economic growth of 1.7 percent next year and 1.2 percent in 2011.


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