German Investor Confidence Hits Six-month Low

July 17, 2012
In addition to weak eurozone demand for German exports, the German economy is also feeling the pinch from slowing momentum in other key partner countries.

As the recent EU summit deal and a European Central Bank rate cut failed to shore up sentiment, German investor confidence fell to its lowest level in six months in July,new data showed Tuesday. After already sustaining its biggest fall in nearly 14 years last month, the ZEW think tank's economic expectations index fell by a further 2.7 points to minus 19.6 points in July, the organization.

That brings the barometer to its lowest reading since January.

"In addition to weak eurozone demand for German exports, the German economy is also feeling the pinch from slowing momentum in other key partner countries," said ZEW president Wolfgang Franz.

He noted, however, that the decline in the index this month was not as steep as in previous months. "Perhaps that augurs for a more pleasing trend in 2013. Nevertheless, the risks must not be downplayed," Franz insisted.

For the survey, ZEW questions analysts and institutional investors about their current assessment of the economic situation in Germany, as well as their expectations for the coming months. A sub-index measuring investors' assessments of the current situation fell by 12.1 points to 21.1 points, its lowest reading in two years. The ZEW index is the only barometer of investor confidence in Germany and this month's reading was based on responses from 273 analysts.

A frequent criticism against it is that the index can be volatile and is therefore not particularly reliable.

Analysts polled by Dow Jones Newswires had been expecting it to fall to minus 20 points this month.

"The latest stock market stabilization, the ECB rate cut, the weaker euro exchange rate and lower oil prices have all not succeeded in brightening up German investors," said ING Belgium economist Carsten Brzeski.

Earlier this month, the ECB trimmed its key interest rates by a quarter of a percentage point to a new record low of 0.75 percent, but markets fell as the response was seen as too timid.

Brzeski said that while the ZEW was more a thermometer of the euro crisis rather than a reliable growth indicator, "it will clearly add to growing concerns about the strengths" of Europe's biggest economy.

Capital Economics economist Jennifer McKeown too felt the latest ZEW data were "another indication that Germany's earlier economic resilience is at an end. "With demand from elsewhere in the eurozone dropping and that in the US softening, we suspect that the export-reliant German economy is heading into recession."

"As a deepening debt crisis continues to hit sentiment, we see German gross domestic product falling by as much as 1% next year after a small rise in 2012," she concluded.

-Simon Morgan, Agence France-Presse
Copyright Agence France-Presse, 2012

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