Germany, the biggest eurozone economy, has been hit by the international credit squeeze but should rebound, although with less vigour than earlier this year, surveys and analysts said Tuesday.
German investor confidence was stable in October, suggesting that the sharpest of the adjustments following the credit market crisis may now have taken place, a poll by the ZEW research institute showed. The closely-watched economic expectations index remained at minus 18.1 points, the same level as in September.
"The almost unchanged economic expectations indicate that the most pressing downward corrections following the crisis on the financial markets seem to have come to an end," a ZEW statement said. Bank of America economist Holger Schmieding, referring to the current state of the economy, put it another way, saying: "Goldilocks is a sturdy girl."
The results, along with a decline in core eurozone inflation to 1.8 percent, were signs that a "'not too hot, not too cold'" scenario of above-trend growth and subdued inflation may well return (early next year)," Schmieding said.
Meanwhile, the Berlin-based DIW institute underscored German economic growth prospects in its autumn report, forecasting an expansion of 2.4 percent this year and 2.1 percent in 2008.
The government currently expects the economy to expand 2.3 percent and 2.4 percent respectively, although analysts anticipate lower figures when the next official forecast is released.
ZEW readings below zero indicate that the majority of the 306 analysts and institutional investors surveyed still expects the German economy to slow down and the result was "still well below its historical average of (plus) 32.1 points," the institute said.
At Commerzbank, analyst Matthias Rubisch agreed, saying: "The message of this survey remains unchanged. More analysts expect a weaking of the economy than a strengthening."
ZEW identified exports as the greatest risk to German economic growth in the coming six months, "owing to the strong euro and the decreasing rate of growth of the US economy."
According to Schmieding however, "the modest improvement in money and credit markets and the resilience of US data apparently offset concerns about the rising euro in October." ZEW said that further growth of the German economy depended in large part on the labour market, which has improved.
Schmieding warned that the survey was volatile but stressed that "major changes in direction in the ZEW tend to project changes in economic momentum quite accurately."
The survey came a day after US Federal Reserve chairman Ben Bernanke said credit markets had improved following widespread turmoil in August but that the US economic outlook was uncertain because of a very weak housing sector.
At Commerzbank, Rubisch concluded that the ZEW survey "points to a roughly balanced judgement" of recent economic indicators. "Business sentiment and retail sales clearly disappointed" but were "balanced by strong industrial output and better US data."