German Investor Confidence Dropped to 15-Year Low

German Investor Confidence Dropped to 15-Year Low

Jan. 15 (Bloomberg) -- Investor confidence in Germany dropped to the lowest in 15 years on concern that a U.S. recession will deepen the slowdown in Europe's largest economy.

The ZEW Center for European Economic Research said its index of investor and analyst expectations fell to minus 41.6 from minus 37.2 last month, the eighth straight decline. Economists expected a decline to minus 40, the median of 40 forecasts in a Bloomberg News survey showed.

Goldman Sachs Group Inc. and Merrill Lynch & Co. forecast that the U.S. will slip into recession this year for the first time since 2001 as the housing slump, which has driven up credit costs globally, curbs consumer spending. That may hurt European exporters already grappling with oil prices around $100 a barrel and an appreciating euro.

``The bad news flow from the U.S. banking sector hasn't abated,'' said Alexander Koch, an economist at Unicredit Markets and Investments in Munich. ``There are real concerns about a U.S. recession dragging down German economic growth.''

German economic growth slowed to 2.5 percent last year from 2.9 percent in 2006, which was the fastest expansion since the turn of the decade, the Federal Statistics office said today. The Bundesbank predicts growth of just 1.9 percent this year.

The Dow Jones Stoxx 600 Index extended losses, falling another 0.3 percent to an intraday low of 341.56, after the ZEW data was published. Germany's benchmark DAX share index has lost 4 percent since the start of this year.

DAX Declines

The world's biggest financial institutions have announced about $100 billion in writedowns and loan losses sparked by the U.S. subprime mortgage slump. Citigroup Inc. will probably report a net fourth-quarter loss of almost $4.3 billion, or 97 cents a share, later today along with job reductions, a dividend cut and a capital injection from outside investors, analysts estimate.

``The largest risk for the development of the German economy is the danger of a recession in the United States following the financial market crisis,'' ZEW said in a statement.

A jump in the U.S. jobless rate in December tipped the balance in favor of an economic contraction by signaling that the longest consumer-spending expansion on record will come to an end this year, Goldman Sachs said Jan. 9.

It forecasts the world's largest economy will shrink as falling house prices and lending restrictions made it difficult for consumers to obtain credit.

Rising Credit Costs

Borrowing costs jumped in mid-August as banks, including Bear Stearns Cos. and Merrill Lynch & Co., began to reveal losses on securities linked to U.S. mortgages aimed at people with poor credit histories.

Last year ``would have been an excellent year without the subprime crisis,'' Peter Mueller, the chief executive officer of Frankfurt-based Commerzbank AG, said yesterday. The bank, which took a 291 million euro ($431 million) third-quarter writedown on 1.2 billion euros of investments linked to U.S. subprime mortgages, is scheduled to report full-year earnings on Feb. 14.

German industrial production, exports and retail sales unexpectedly declined in November, reports showed last week, suggesting the economy is losing momentum as a stronger euro makes exports less competitive and record oil prices drive up inflation.

Higher credit costs will also crimp company investment, the Munich based Ifo institute said Dec. 12. It expects company spending on equipment to grow about 4 percent this year after increasing 9.2 percent last year.

BLOOMBERG