German investor outlook up on signs of end to euro recession

(FRANKFURT) - Investment sentiment in Germany, Europe's biggest economy, rose in August, buoyed by signs that the eurozone's recession may be coming to an end, a new survey found on Tuesday.

The widely watched investor confidence index calculated by the ZEW economic institute rose by 5.7 points to 42.0 points in August, beating analysts' forecasts for an increase to about 40 points this month.

"This is the highest reading since March 2013," ZEW said.

"First signs of an end to the recession in important eurozone countries may have contributed to the indicator's rise. Furthermore, the economic optimism is supported by the robust domestic demand in Germany," it said.

For the survey, ZEW questions analysts and institutional investors about their current assessment of the economic situation in Germany, as well as their expectations for the coming months.

The sub-index measuring financial market players' view of the current economic situation in Germany rose by 7.7 points to 18.3 points in August.

A frequent criticism of the ZEW index is that it can be volatile and is therefore not particularly reliable.

Annalisa Piazza at Newedge Strategy said she believed the European Central Bank's pledge to keep interest rates at their current record low levels was helping to support sentiment.

"In our view, the ECB's dovish tone and commitment to maintain a very accommodative monetary stance in the foreseeable future played an important role in supporting economic sentiment in August," she said.

Capital Economics economist Ben May said that, combined with the latest eurozone industrial output data -- which rose 1.2 percent in the second quarter -- the ZEW barometer "provides further signs that the eurozone has emerged from recession."

Postbank economist Heinrich Bayer also said the ZEW data fitted in with improving hard data for both Germany and the euro area as a whole.

Natixis economist Johannes Gareis said he believed the ZEW reading "supports the view that the German economy is on track for a robust growth for the rest of this year."

But Berenberg Bank economist Christian Schulz cautioned that the ZEW index "is volatile and usually better at predicting turning points in the economic trajectory than the extent of the subsequent swing."

In the first half of this year, political wobbles in some eurozone crisis countries, but also China's soft landing and the debate about a possible end to anti-crisis measures in the United States "have temporarily weighed on sentiment," Schulz said.

"However, the eurozone recovery is proving increasingly resilient and becoming the key driver of optimism for the German economy, too. Downside tail risks remain. But as growth returns in the eurozone, chances that the recovery can overcome potential setbacks improve, too," Schulz said.