• Germany's news in English

Investor confidence hit by Spain's struggles

The Local · 19 Jun 2012, 13:01

Published: 19 Jun 2012 12:16 GMT+02:00
Updated: 19 Jun 2012 13:01 GMT+02:00

Facebook Twitter Google+ reddit

Investor confidence showed the sharpest fall in June for nearly 14 years. Germany has the biggest economy in the European Union and has so far been resilient to the eurozone debt crisis, largely thanks to the power of its industrial exports.

But the ZEW think tank's economic expectations index, having fallen by more than 12 points last month, plunged a further 27.7 points this month to minus 16.9 points, the lowest level since January.

The drop was the steepest fall since October 1998 and reflected concerns about the escalation of the situation in the Spanish banking sector, as well as the fate of Greece, ZEW said in a statement.

The poll was mostly carried out before the outcome was known of the Greek parliamentary elections at the weekend, where pro-bailout parties emerged the winners, easing fears Greece could exist the single currency.

Nevertheless, the vote "affords us a short breathing space, but nothing more and nothing less," ZEW chief Wolfgang Franz warned.

"Analysts' expectations offer a stern warning against taking an all-too-optimistic view of Germany's economic outlook this year," Franz said.

There were unmistakable risks of a sharp economic downturn in Germany's key trading partners.

"In addition, there is the still precarious situation in the euro area," he said.

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.

The sub-index measuring investors' assessments of the current situation fell by 10.9 points to 33.2 points, also its lowest reading since January.

The ZEW index is the only barometer of investor confidence in Germany and this month's reading was based on responses from 274 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 again this month, but still remain in positive territory.

Capital Economics economist Ben May said the latest reading "provides further support to the view that the eurozone slowdown is now hitting Germany pretty hard."

While the ZEW had not proved to be "a particularly reliable indicator of German gross domestic product growth in the past, it points to barely positive annual GDP growth," May said.

"With more reliable indicators of German economic activity recently painting a pretty downbeat picture, we still see GDP expanding by a below consensus 0.5 percent this year, with worse to come in 2013," May said.

Newedge Strategy analyst Annalisa Piazza suggested the unexpectedly sharp drop in the index "clearly shows a general sense of panic amongst investors."

Story continues below…

The data "point to risks of a deeper-than-expected recession" for the euro area as a whole, she said, suggesting the European Central Bank could soon be spurred into action.

Berenberg Bank economist Christian Schulz agreed. If EU leaders make progress in drawing up a convincing policy response at their upcoming summit on June 28-29, "the ECB could complement the response with an interest rate cut and further liquidity providing operations at its next policy meeting on July 5 at the latest," Schulz said.

"Such a policy response could calm the market turmoil for a while again and lead to improving economic confidence and growth prospects. Towards the end of the year, we expect Germany's economy to grow again and help drag the rest of the eurozone out of recession," he concluded.


The Local (news@thelocal.de)

Facebook Twitter Google+ reddit

Your comments about this article

13:29 June 19, 2012 by smart2012
Well done merkozy
Today's headlines
Student fined for spying on women via their webcams
Photo: DPA

Student from Munich fined €1,000 for spying on 32 different computers, using their webcams to take photographs, or record their keyboard history.

This is how much startup geeks earn in Germany
Photo: DPA

A comprehensive new survey of 143 startup founders shows how much you are likely to be earning at a German startup, from entry level all the way up to sitting on the board.

Man dies after beating for peeing near Freiburg church
The Johannes Church in Freiburg. Photo Jörgens Mi/Wikipedia

A middle-aged man from southern Germany has died after being attacked by a group of men who took umbrage with the fact he was urinating in the vicinity of a church.

The Local List
Seven German celebrities with uncanny doppelgängers
Former Berlin mayor Klaus Wowereit and actor Alec Baldwin. Photo: DPA; Gage Skidmore, Wikimedia Commons

Check out these seven look-a-likes of well known German figures - we admit that some are more tenuous than others...

Israel seeks to buy three new German submarines: report
A Dolphin class submarine. Photo: DPA

Israel is seeking to buy three more advanced submarines from Germany at a combined price of €1.2 billion, an Israeli newspaper reported Friday.

Here’s where people live the longest in Germany
Photo: DPA

Germans down south seem to know the secret to a long life.

More Germans identify as LGBT than in rest of Europe
Photo: DPA

The percentage of the German population which identifies as lesbian, gay, bisexual or transgender is higher than anywhere else in Europe, according to a new study.

'Reichsbürger' pair attack police in Saxony-Anhalt
File photo: DPA.

A "Reichsbürger" and his wife attacked police officers on Thursday, just a day after another Reichsbürger fatally shot an officer in Bavaria.

Five things not to miss at the Frankfurt Book Fair
Photo: DPA

From consulting a book doctor to immersing yourself in an author's world with the help of virtual reality, here are five things not to miss at this week's Frankfurt Book Fair, the world's largest publishing event.

Parents who don't get nursery spot for kid entitled to pay
Photo: DPA

The Federal Court of Justice (BGH) ruled on Thursday that parents whose children don't receive placements in nursery care are entitled to compensation.

Sponsored Article
How to vote absentee from abroad in the US elections
10 things you never knew about socialist East Germany
Sponsored Article
Last chance to vote absentee in the US elections
How Germans fell in love with America's favourite squash
How I ditched London for Berlin and became a published author
Sponsored Article
How to vote absentee from abroad in the US elections
12 clever German idioms that'll make you sound like a pro
23 fascinating facts you never knew about Berlin
9 unmissable events to check out in Germany this October
10 things you never knew about German reunification
10 things you're sure to notice after an Oktoberfest visit
Germany's 10 most Instagram-able places
15 pics that prove Germany is absolutely enchanting in autumn
10 German films you have to watch before you die
6 things about Munich that’ll stay with you forever
10 pieces of German slang you'll never learn in class
Ouch! Naked swimmer hospitalized after angler hooks his penis
Six reasons why Berlin is now known as 'the failed city'
15 tell-tale signs you’ll never quite master German
7 American habits that make Germans very, very uncomfortable
Story of a fugitive cow who outwitted police for weeks before capture
Eleven famous Germans with surnames that'll make your sides split
The best ways to get a visa as an American in Germany
jobs available
Toytown Germany
Germany's English-speaking crowd