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Pickup lifts German investors' faith

GERMAN investor confidence improved for a seventh consecutive month in May, driven by a rebound in incoming business orders and a pickup in exports, a leading indicator showed yesterday.

The ZEW index, which assesses investor confidence in Germany, rose to 31.1 points from just 13 points in April. The May reading puts the outlook in Germany over the historical average of 26.2 points.

The Mannheim-based ZEW said those polled had cited a turnaround in economic indicators in recent weeks, including an end to the strong drop in industrial production and a rise in exports and incoming orders.

"With regard merely to the economic activity, more and more signs indicate that the worst seems to be over," said ZEW President Wolfgang Franz in the report.

"However, with regard to the labor market development, the worst (is yet) to come," he warned.

Layoffs and job losses at companies often lag declining orders and production.

In fact, the ZEW said the assessment in May for the current economic situation in Germany remains almost unchanged at minus 92.8 from minus 91.6 in April.

The economic expectations for the 16 countries that share the euro currency rose by 16.7 points to 28.5 points from 11.8 points in April.

The ZEW's indicator for the current economic situation in the eurozone remained nearly unchanged at minus 93.2 points.

"It is an open question whether the majority of the ZEW survey participants are betting on the wrong horse," Andreas Rees, an economist at UniCredit, wrote in a note.

"Our baseline scenario is still a sluggish recovery with an end to the recession in autumn of 2009. But there is no denying that the upside risks are increasingly outweighing the potential for negative surprises," Rees said.

Also yesterday, the Ifo Institute for Economic Research at the University of Munich said its world economic climate indicator rose in the second quarter for the first time since 2007.

The Ifo revealed similar results to the ZEW survey - economic expectations improved in all major regions, especially in North America, Asia and western Europe, but the current economic situation indicator is still unfavorable.

"In light of the recession and the distinct slowing of inflation, a further decline in key interest rates is anticipated nearly everywhere where scope for such lowering is possible," said Hans-Werner Sinn, the president of Ifo, in the group's report. "Long-term interest rates, however, should stabilize in the course of the next six months."

Earlier this month, the European Central Bank lowered its main interest rate to 1 percent, the lowest level in the history of the ECB. Lower interest rates make borrowing cheaper, encouraging businesses to expand.


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