German investor sentiment brightens

German investor sentiment has brightened further in spite off global financial market turbulence, suggesting that the economic recovery in Europe’s largest economy remains robust.

The Mannheim-based ZEW institute’s “economic sentiment” index published on Tuesday rose by 2.9 points to 5.8 points this month, the highest level since July last year.

The ZEW index tumbled in the second half of2006 amid fears that German economic growth would be hit by a stronger euro, a slowing US economy and a three-percentage point rise in German VAT at the start of this year.

However, those fears now appear to have been overdone and the ZEW index has since bounced back, although it still remains significantly below its historical average of 33.2 points.

The survey, regarded as a good indicator of future trends in activity,showed that domestic orders had developed “favourably,” in spite of the VAT rise, the ZEW said. Consumer confidence had also stabilised, helped by labour market improvements. However, it described as “disconcerting” a fall in orders from abroad. “The German economy is still expanding and the demand for labour rising,” said Wolfgang Franz, ZEW president.

Optimism about the German economy has become widespread. Earlier this week the Institute for the World Economy, in Kiel, northern Germany, forecast German economic growth this year would exceed last year’s 2.7 per cent rate, already the fastest since 2000.

Nevertheless, details of the ZEW survey showed investors’ assessment of the current business situation – which had reached an all-time high in recent months - worsened for the first time since June 2005.

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