German investor confidence jumped the most on record in January, prompting some economists to suggest that the worst of Europe’s sovereign debt crisis may have passed.
The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, surged to minus 21.6 from minus 53.8 in December, its second straight increase. The gain of 32.2 points is the biggest since ZEW started the index two decades ago. Economists forecast a reading of minus 49.4, the median of 39 estimates in a Bloomberg News survey shows.
“It seems the worst of the euro crisis is over,” said Michael Schroeder, head of ZEW’s financial markets department.
German business confidence unexpectedly rose for a second month in December and unemployment dropped, even as the debt crisis threatened to tip Europe’s largest economy into recession. The European Central Bank last month flooded the banking system with 489 billion euros ($623 billion) in three- year loans, easing concerns about a credit shortage and helping to shore up demand in Italian and Spanish bond auctions.
“Today’s ZEW reading adds to evidence that the trough of negativity might be behind us,” said Carsten Brzeski, senior economist at ING Group in Brussels.
Current Conditions
ZEW’s gauge of current economic conditions rose to 28.4 from 26.8. The euro climbed a quarter of a cent to $1.2800 immediately after the report and traded at $1.2779 at noon in Frankfurt.
The Stoxx Europe 600 Index gained 1 percent to its highest level since Aug. 2, led by banks, carmakers, mining and oil companies. Germany’s benchmark DAX Index (DAX) has risen 4 percent this year after falling 15 percent in 2011 as European leaders struggled to contain a debt crisis that started in Greece more than two years ago and spread to the region’s core.
Inflation Slows to Two-Year Low, Reducing Pressure on India Interest Rates
India (INGDPY)’s inflation slowed to the lowest level in two years, giving the central bank scope to keep interest rates on hold for a second straight meeting next week.
The benchmark wholesale-price index rose 7.47 percent in December from a year earlier, the commerce ministry said in a statement in New Delhi today, compared with a 9.11 percent gain in November. The median of 25 estimates in a Bloomberg News survey was for a 7.40 percent gain.
Easing prices may strengthen the ruling Congress party’s bid in state elections starting this month after corruption allegations undermined Prime Minister Manmohan Singh’s coalition in the past year. Inflation in India is still the fastest among BRIC nations including Brazil, Russia and China, crimping the Reserve Bank of India’s room to lower borrowing costs and shield the economy from Europe’s debt crisis.
“This is positive news for the government before elections,” said Rupa Rege Nitsure, a Mumbai-based economist at the state-owned Bank of Baroda. “Inflation will need to drop more before the RBI can cut rates.”
Nitsure expects the central bank to leave the repurchase rate at 8.5 percent in the Jan. 24 policy decision and start reducing it from the end of March.
India’s 10-year bonds declined on speculation the government will exceed its fiscal deficit target, spurring more borrowings from the market. The yield on the 8.79 percent note due November 2021 rose three basis points, or 0.03 percentage point, to 8.22 percent at the close in Mumbai.
