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German investors see a silver lining

GERMAN investor confidence improved more than economists forecast in January after the European Central Bank cut interest rates and the government announced a second spending package to battle the deepening recession.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations rose to minus 31 from minus 45.2 in December, its third successive increase and to the highest in less than a year. Economists expected a gain to minus 43.1, according to the median of 37 forecasts in a Bloomberg News survey. The index reached minus 63.9 in July, the lowest since it was first compiled in December 1991.

The ECB last week cut its benchmark lending rate by half a percentage point to 2 percent, the fourth reduction since early October, while Chancellor Angela Merkel's coalition agreed to spend an extra 50 billion euros (US$71 billion) to stem Germany's worst recession since World War II. European Union Monetary Affairs Commissioner Joaquin Almunia said yesterday that looser monetary and fiscal policies should "create the conditions for a gradual recovery in the second part of 2009."

"While the recession is deeper than anyone had expected, government and central bank responses globally may start to stabilize the economy," said Nick Matthews, an economist at Barclays Capital in London. Yesterday's ZEW reading suggests "that investors see a silver lining and that the worst may soon be behind us."

ZEW's gauge of the current situation slid to minus 77.1, the lowest since December 2003, from minus 64.5.

Companies are scaling back output and cutting jobs as the global economic slump curbs demand for products made in Europe's largest economy.

Volkswagen AG, Daimler AG and Bayerische Motoren Werke AG are among car manufacturers that have suspended production, canceled shifts and shortened working hours in recent weeks. German car sales fell last year to the lowest level since reunification in 1990. Germany's benchmark DAX share index has lost almost 10 percent this year after dropping 40 percent in 2008. Business confidence dropped to the lowest in more than a quarter of a century in December and unemployment rose for the first time in almost three years.


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