German Investor Confidence Strengthening

The ZEW Center for European Economic Research in Germany reported that its index of investor confidence rose to 52.5 in August, up from 41.9 in July. The increase follows a July increase that almost doubled the June level of 21.3. August was the first month since October, 2002 that the index showed a year-to-year increase.

The index, based on a survey of 310 analysts and institutional investors, tends to forecast business activity six months ahead.

Investors' confidence has been strengthened by the rise in the stock market--the Morgan Stanley Capital Market Index of German Stocks on August 18th, has increased almost 54% since its low on March 12th,--and by corporate earnings reports that have exceeded expectations. In addition, both monetary and fiscal policy have become easier. The European Central Bank reduced its benchmark rate to 2% from 2.5% on June 5.and the Government has brought forward some 22 billion Euros ($25 billion) of tax reductions to early 2004.

Although it is based on a small sample, the ZEW index has a good reputation of anticipating the results of the broader IFO index that is widely regarded as an important leading indicator of the economy. The IFO index will be available later in the month.