German investor confidence at six month high

German investor confidence jumped to a six month high in January after the recovery in Europe’s largest economy strengthened and stocks extended gains.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict developments six months in advance, increased to 15.4 from 4.3 in December, its third straight advance. Economists had expected a gain to 7, according to the median of 39 forecasts in a Bloomberg News survey.

German companies have boosted exports of machinery and vehicles, fueling hiring and driving the fastest economic expansion in two decades last year. The benchmark DAX stock index has gained 17 percent over the past six months.

At the same time, European economies including Ireland and Spain are cutting spending to fight a debt crisis, damping demand.

‘Investors’ confidence defied the ongoing sovereign debt crisis and also the strong winter. It looks as if there is almost blind trust in the strength of the German recovery. And indeed, the German economy is cruising along safely,’ said Carsten Brzeski, an economist at ING Group in Brussels.

ZEW’s measure of the current economic situation rose to 82.8, the highest since July 2007, from 82.6 in December. The euro traded little changed at $1.3408 after the report.

The DAX has risen 2.2% this year, extending its fourth quarter gain when German companies from BASF SE, the world’s largest chemical maker, to luxury carmaker Daimler AG reported reviving earnings. The Stoxx Europe 600 Index has risen 3% this year.

Continental AG, Europe’s second biggest tyre maker, said on January 11 that sales may rise as much as 10% this year. The Hanover, Germany based company on that day reported full year revenue that beat its previous forecast.

The improving outlook has also fueled payrolls. The German jobless rate is currently at 7.5%, the lowest since April 1992. Business confidence rose to a record high last month.

Bundesbank President Axel Weber said that German gross domestic product would return to pre-recession levels by the end of 2011, although growth will ‘moderate’ from the 3.6% expansion last year.

The debt crisis in the euro area, which buys about 40% of German exports, may restrain the economy’s recovery this year. European Central Bank President Jean-Claude Trichet said that countries need to do their ‘utmost to meet their deficit targets’ and pursue ‘ambitious and credible multi year consolidation strategies’ to push down deficits.

‘It’s a tug of war now between fiscal austerity measures in Europe weighing down on growth and the reacceleration of growth in Asia,’ said Jens Sondergaard, chief European economist at Nomura Bank in London.