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Germany Seen Recession-Bound in Poll Showing Euro Crisis

By Simon Kennedy
November 30, 2012 4:24 AM EST 5 Comments
An employee assembles a Golf automobile as it passes along the production line at the Volkswagen AG (VW) factory in Wolfsburg, Germany.
Photographer: Jochen Eckel/Bloomberg
An employee assembles a Golf automobile as it passes along the production line at the Volkswagen AG (VW) factory in Wolfsburg, Germany.

Germany, Europe’s largest economy, will be tipped into recession as the sovereign debt crisis roiling its neighbors extends into the new year, according to the Bloomberg Global Poll.

Even as European leaders laud their latest fix for Greece’s (GGGB10YR) debt woes, 53 percent of 862 investors, analysts and traders who are Bloomberg subscribers said this week they think Germany’s economy will drop into a recession for the first time in more than three years. Sixty-four percent expect Europe’s debt turmoil to deepen again despite recent signs of calming in its financial markets.

A slump in the German economy would remove a rare engine of demand for the rest of the continent, probably extending the euro-area-wide recession that was confirmed last quarter. A contraction would also pose a challenge for Chancellor Angela Merkel who is seeking a third term in elections next year amid domestic disquiet with three years of supporting Europe’s debt-lashed governments.

“Germany is starting to feel some pressure as sentiment in the euro-zone weighs on its economy,” said Chanoine Webb, a poll participant and global investment analyst at Close Brothers Asset Management Ltd. in London. “It won’t be able to decouple for much longer.”

Retail Sales

The survey was released hours before data showed German retail sales slumped the most in almost four years in October, falling 2.8 percent from September when adjusted for inflation and seasonal swings. The DAX Index (DAX), Germany’s benchmark stock index, was up 0.3 percent at 7,425.99 at 10:22 a.m. in Frankfurt.

Germany may soon have to agree to more aid as 83 percent of survey participants said Spain will need a bailout within the next year, about the same as in September. Italy won’t need a rescue, according to 64 percent.

European governments this week cut Greece’s interest rates and gave it more time to pay back loans, declaring that after three years of stop-start crisis-fighting they had found a way to nurse its economy back to health.

That was welcomed by investors who have already reduced the bond yields of Europe’s peripheral states after the European Central Bank announced it would join the EU in buying bonds of those that sign up to economic reforms. Spain is still mulling whether to do so.

Signs of Stabilization

Spain’s 10-year bond yield is down almost 250 basis points since its euro-era high of 5.75 percent in July, and 32 percent of poll respondents said such signs of stabilization signaled the worst is over for Europe. Eighty-three percent also doubted a Greek default will cause the collapse of the euro zone next year and 65 percent said no country will quit the bloc.

Investors expressed greater confidence in the ability of European nations to keep paying their bills. While 73 percent bet Greece will default, that was the lowest since November 2010. Sixty-two percent said Spain won’t go bankrupt and 81 percent predicted Italy will remain solvent.

Eighty-two percent endorsed Ireland’s credit-worthiness and 60 percent said the same of Portugal. More than 90 percent of those asked said Germany, the U.K., France and the U.S. won’t default.

“Slowly but surely Europe is resolving its issues,” said Nikolay Zhukovsky, a poll respondent and credit analyst at Standard Bank in London.

Green Shoots

While the German economy expanded 0.2 percent in the third quarter as the euro-region’s shrank 0.1 percent overall, data this month showed factory orders, industrial production and exports all fell more than forecast in September in the region’s lynchpin economy. German manufacturing shrank this month and investor confidence unexpectedly declined.

Siemens AG, the biggest engineering company in Europe, on Nov. 8 unveiled a 6 billion-euro ($7.8 billion) savings plan to restore profitability, acknowledging it was slow to react to shrinking demand

Still, a German recession isn’t guaranteed with 44 of poll respondents saying it will be avoided. The Paris-based Organization for Economic Cooperation and Development this week predicted a 0.6 percent expansion next year, the country’s jobless rate is close to a two-decade low and business confidence unexpectedly rose this month.

Survey participants remained downbeat about the euro-zone economy overall even though at 71 percent, the number saying it was deteriorating was the smallest this year.

Merkel Policies

The policies of Merkel, in power since 2005, were viewed optimistically by 60 percent of those surveyed, the most since January 2011.

By contrast, the approach of French President Francois Hollande, who took office in May, was regarded pessimistically by 80 percent. U.K. Prime Minister David Cameron divided survey participants with 44 percent applauding his actions and 40 percent opposing them.

ECB President Mario Draghi was seen favorably by two thirds of participants and International Monetary Fund Managing Director Christine Lagarde won the support of 58 percent.

The Bloomberg Global Poll was conducted Nov. 27 by Selzer & Co., a Des Moines, Iowa-based firm. It has a margin of error of plus or minus 3.3 percentage points.

To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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