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Investor confidence hits 18-month low

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Investor confidence hits 18-month low
Photo: DPA
13:01 CEST+02:00
Investment sentiment in Germany declined for the sixth month in row in June, falling to its lowest level for 18 months amid concern Europe's top economy is losing momentum, a survey found on Tuesday.

The widely watched investor confidence index calculated by the ZEW economic institute fell by 3.3 points to 29.8 points in June. That was the lowest level since December 2012.

Analysts had been projecting a slight increase to around 35 points this month. "The indicator has decreased for the sixth time in a row," said ZEW president Clemens Füst.
   
"The recent decrease, however, was notably less significant than the May decrease, when the indicator lost more than ten points.
  
"The German economy is currently in a very good shape, but further increases are becoming more difficult," Füst said.
   
"We had a strong first quarter in 2014 due to favourable weather conditions, but signs are that the second quarter will be weaker," 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.
 
Fears justified?
   
A frequent criticism of the ZEW index is that it can be volatile and is therefore not particularly reliable.
   
"There recently had been doubts and concerns about the strength of the German economy," said ING DiBa economist Carsten Brzeski.
   
"Slowing emerging market economies, the economic weakness of Germany's most important trading partner France and ongoing geopolitical conflicts close to Germany's backyard looked set to take their toll on the German economy," the expert said.
   
"However, fears of crash landing were overdone," even if the fundamental risks had clearly not disappeared, Brzeski said.
   
Capital Economics economist Jennifer McKeown said investors had been unimpressed by the European Central Bank's recent raft of monetary easing.
   
The ZEW reading "adds to signs that the German recovery is nearing a peak," she said.
   
"Admittedly, the continued rise in the current conditions index is an encouraging sign that the recovery has continued for now," McKeown noted.
   
Furthermore, the headline index was still above its long-term average.
   
"But the recent fall in this index, together with the softer tone of the business surveys lately, suggests that the Germany recovery might not gain much pace from here," McKeown said.
   
Natixis economist Johannes Gareis similarly felt that "analysts don't really believe in a positive impact of the ECB stimulus on the German economy."
   
The renewed drop in the index "should also be seen against the background of still looming geopolitical risks," Gareis said.
   
"Indeed, as the crisis in Ukraine is dominating the news again since the start of this week and Russia cut off gas supplies to Ukraine yesterday, it won't be surprising to see an even lower ZEW headline index next month," he said.
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